Uranium Going For It's Gamestop Moment?
Uranium goes parabolic as Kazatomprom poops the supply bed
Uranium
The world’s largest uranium producer, Kazatomprom, finally fessed up that it will likely miss its production targets for 2024 and 2025. Bullish news for an already supply-constrained market.
Construction delays and sulphuric acid shortages. This is what I have said in the past: the next supercycle in resources will be driven primarily by supply shortfalls. Eric Townsend of MacroVoices interviewed Justin Huhn (Uranium Insider) this week; supply challenges were discussed during the interview, focusing on skilled labor shortages.
There are not too many new things in the podcast if you are a seasoned uranium investor, but I am friendly with Justin and am happy to plug his appearances. Good info if you are newby.
Goehring&Rozencwajg on uranium
Few investors thought uranium companies had any future whatsoever; even fewer predicted they would become some of the best-performing stocks in the market. Since the end of 2018, Cameco and Kazatomprom have advanced four-fold, compared with 77% for natural resource stocks broadly, 97% for the S&P 500, and 161% for the tech-heavy Nasdaq composite. Smaller uranium development companies have surged as well. On October 29th, 2023, Bloomberg led with the bold headline: “Hedge Funds Pile Into Uranium Stocks Poised for Dramatic Gains.”
Although supply will ultimately undo the uranium rally, it will take years to ramp up, given years of chronic underinvestment in the industry. Prices will likely move much higher.
Uranium is going mainstream as it hit Bloomberg:
Hold on tight, as we are now possibly hitting the parabolic stage. I was around for the last uranium bull market, and this is what we saw: relentless weekly increases in the spot price drove stock prices higher and into an eventual frenzy and price spike.
Oil
Beginning of the End for the Permian
Permian basin and Eagle Ford oil recoveries have both fallen by 30% and Bakken has declined by almost 20%. Those plays accounted for two-thirds of U.S. output in 2023. That means that U.S. production will decline at some time in the relatively near-future.
But wait—isn’t the U.S. producing a record amount of oil? Yes, U.S. output increased by more than 1 million barrels per day in 2023 to 13.2 mmb/d and about 80% of that increase was from tight oil plays. How can well performance be decreasing while production is increasing?
I haven’t talked about oil for a while, as the oil price has settled in a trading range slightly below $80/barrel. Nevertheless, one of my long-term views is that the shale miracle would eventually peak, then plateau, and then enter decline.
When that happens, we will likely have an oil price spike as investment in conventional oil has been displaced with investment in shale fields. Shale production growth is what kept prices for oil from spiking already.
Regardless, I am bullish on oil long-term and have several producers in the portfolio. They have mostly paid down their debt and are cash-flowing nicely at these current oil prices. Excess cash flow is being returned to shareholders via stock buybacks and dividends.
Quote
Parting thought from a quote by Rob Arnott, founder and chairman of the board of Research Affiliates, an asset management firm.
I like to think of myself as a contrarian investor. It is challenging to run counter to the herd. Nevertheless, in my view, it is the only way to outperform the market consistently. It also incorporates one of the most significant advantages the small retail investor has over the professional investor who has to report to investment boards or outside investors: the ability to be patient.
To your investing success,
John Polomny