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I get asked, "what is the bear case for uranium?" The main answer is demand destruction - cheap gas, low electricity demand or another reactor accident.
But I want to cast the distinction that the bear case for #uranium price is different than the bear case for uranium equities.
But I want to cast the distinction that the bear case for #uranium price is different than the bear case for uranium equities.
Uranium price is connected to uranium equities via the buying and selling of uranium (i.e. cash flow) and via sentiment - that a company can profitably produce or sell assets at the current or future uranium price.
The supermajority of equities in the space are sentiment-driven.
The supermajority of equities in the space are sentiment-driven.
The bear case for *equities,* therefore, is one in which the uranium price goes up in such a way that gains are captured by a small subset of the industry rather than a larger crowd.
I will leave the "how" as an exercise to the reader.
I will leave the "how" as an exercise to the reader.
A rising uranium price environment can play out in different ways:
1. Existing and C&M producers cover most demand
2. Existing, C&M and select greenfield producers cover most demand
3. Many new producers enter construction/production
4. Many new producers + major asset purchases
1. Existing and C&M producers cover most demand
2. Existing, C&M and select greenfield producers cover most demand
3. Many new producers enter construction/production
4. Many new producers + major asset purchases
For many of the companies in the space, in order for these equities to really explode you need either:
- many people (including "smart" money) to believe that #3 will happen
- established companies to set their money on fire as they did in the last cycle by buying subpar assets
- many people (including "smart" money) to believe that #3 will happen
- established companies to set their money on fire as they did in the last cycle by buying subpar assets
The disconnected equities uranium bear case is one in which uranium price goes up, but the dynamics of the market (timing, outlook, structure) don't benefit the more speculative producers.
And in this case, someone who is (very) asymmetrically invested can get left out.
And in this case, someone who is (very) asymmetrically invested can get left out.
