Does the uranium surge still have legs?

Thursday, 14 December 2023 — Melbourne, Australia

Twitter (X): @JCooperGeo

[6 min read]

Dear Reader,

2023 has been a great year for the uranium bulls…a shining light on an otherwise terrible market for commodities.

But if you’ve been sitting on the sidelines, is now the time to jump in?

That’s what I’ll try to unpack in today’s issue of Fat Tail Daily.

The risks and potential long-term opportunity for this once hated sector.

So, let’s start by taking a quick glimpse at the recent price action…

As you can see below, uranium shot up more than 50% after breaking out of a holding pattern in late April.

It’s a staggering move for any commodity, particularly one that’s sat in the gutter for the better part of a decade.

But really, the surge was inevitable.

This energy dense fuel which powers nuclear reactors is a simple solution to end the planet’s addiction to coal and oil.

Whether it’s sunny, cloudy, windy, still, day or night…nuclear produces clean, cheap base load power 24 hours a day.

It’s why I remain bullish on the long-term direction of this commodity.

In fact, last January I put together a two-part series on four commodity predictions I thought might play out in 2023.

Now I didn’t get all the predictions right, but I did say this about uranium…

The development of new oil and gas fields needs a decade or more of sustained investment to replace depleting reserves, yet the last few years have been among the lowest investment on record in the industry.

So herein lies the only viable solution to the world’s biggest problem.

Ensuring the global economy can meet base load power requirements means we need something far, far greater than any solar, tidal, hydro, or wind power generators could ever achieve.

It brings me to the only achievable alternative for our future energy needs…nuclear.

Love it or loathe it, as an investor, you can’t ignore the potential for uranium in fuelling the nuclear industry.

Governments have either knowingly (or unknowingly) all but guaranteed that at some point in the near future, we’ll need to accept nuclear as our staple source of base load energy.

They’ve signed the death knell for fossil fuels…they’re totally blind to the issue of critical metal supplies.

It means we’re slowly walking into a new nuclear age.

While the 2011 Fukushima nuclear disaster in Japan still hangs large over the industry, the world has never faced the potential for global energy shortages on the scale that’s likely to hit over the coming years.

It comes down to lack of supply.

That’s why I believe nuclear will become a focus in 2023…uranium stocks will, of course, surge if this situation plays out.

If you’re interested in revisiting that article, you can do so here.

But, for those investors that didn’t get in on the initial action, is it too late to add exposure?

Now, it’s always dangerous to try and call a top in any strong rally like this.

But there are signs this sector could be overshooting, at least in the short term.

No doubt you’ve seen the flood of bullish headlines ballooning uranium’s prospects.

When trends hit the mainstream, that’s your first warning that the market could be overheating.

But there are more tangible signals that suggest we could be approaching a near-term top.

Given I’m a geologist, I tend to focus on the rocks…first and foremost!

But I also like to use charts to understand where markets might be headed next.

Fukushima Resistance

Now, I always like to add a disclaimer that technical analysis offers probabilities, NOT certainties.

But here’s a long-term uranium chart I shared on Twitter (X) last month, highlighting the potential resistance for uranium…

As you can see on the chart, uranium topped out at around US$72 per pound back in 2011.

This preceded Japan’s Fukushima disaster which sent the sector into a secular BEAR market.

Global economies turned their back on nuclear energy. Demand for uranium sank to multi-year lows.

Yet all that’s in the past now.

As you can see on the chart (above), uranium has surged in the last three months and is now trading ABOVE the levels that preceded the Fukushima disaster at US$81 per pound.

And that’s where we have an interesting technical set up…historical tops often mark future support or resistance.

Now, it might take some time for this to play out.

Prices MAY hover around the ‘Fukushima resistance’ levels for several weeks before we get a clear indication.

But in my mind, uranium sits at a critical juncture…

A sustained break above the top from 2011 and this would be very bullish, a sign of further strength and a continuation of the strong rally.

But any pull-back around these levels could result in a significant reversal.

And it’s not just the underlying commodity approaching POTENTIAL resistance.

Miners tied to uranium extraction are also nearing historical tops.

Take Cameco [NYSE: CCJ], one of the world’s largest uranium producers. This Canadian based operator produces around 12% of global supply.

After undergoing a major surge in 2023, CCJ is now just a stone’s throw from its all-time top made in 2007.

Take a look for yourself below:

Again, historical tops often mark future resistance levels.

That’s why I believe investors should now heed caution in this heated market.

Now, I’m not saying the long-term bull market is over…uranium could have several strong years ahead.

But given potential resistance is approaching, the probability of a reversal is rising.

If you’re not already riding the uranium surge, sitting back and watching how this technical set up plays out could be your best course of action.

Let’s wait and see.

Until next time,

James Cooper,
Editor, Diggers & Drillers and Mining: Phase One

James Cooper has been a working geologist in mines across Australia, Canada and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts first hand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.

With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focussed investing letter Diggers & Drillers and the ultra-speculative explorer focussed trading service Mining: Phase One.

[3 min read]

Dear Reader,

The most exciting thing in the world of money and politics, right now, is the remarkable story of Javier Milei in Argentina. He brandished a chainsaw at campaign events, pledging to use it on the government.

Now, against all odds, he is El Presidente…and he’s cutting the deadwood. All over the world people are wondering: shouldn’t we try this at home?

We have two of our Bonner Private Research team on the scene to bring us the straight skinny — one in Buenos Aires and the other in Cafayate. Here’s the ‘Chainsaw Report’ from Joel Bowman In the Paris of South America::

Within the first 48 hours in office, Sr. Milei has...

He's also cut all superfluous ministerial expenses (staff cell phones, drivers, travel accounts, etc.)

Currently, all people hired by the outgoing president (Alberto) across all divisions of the government are under review. The presidential spokesperson reiterated that ’the national spending cuts have just begun.’

Also in the news, perhaps unrelated, a fire has broken out in the building next to the Ministry of Labor with reports there was an explosion. Some are speculating they're ’burning documents.’

Yesterday, more wood chips flew. Bloomberg:

Argentina’s Milei Devalues Peso by 54% in First Batch of Shock Measures

The newly inaugurated administration weakened the official exchange rate to 800 pesos per dollar, Economy Minister Luis Caputo said in a televised address after the close of local markets on Tuesday. It was 366.5 per dollar before the address.

Milei needs to move fast. Argentina has run out of money. And the parasites, powers-that-be, and elite know-it-alls around the world are doing everything they can to stop him. Because he is a real reformer, not a fake. Milei is no ‘right-winger’…no ‘Trump clone.’ He’s something else altogether; he’s actually trying to reduce the power of a bankrupt government. Is it possible? With so many powerful special interests against him? We will see.

The American Dream

In the meantime, the Biden Team goes in the other direction, and wonders why Americans don’t appreciate it. CBS news:

The ’American Dream’ costs far more than most people will earn over their lifetime

The ’American Dream’ costs about $3.4 million to achieve over the course of a lifetime, from getting married to saving for retirement, according to a recent analysis from financial site Investopedia.

Meanwhile, median lifetime earnings for the typical US worker stand at $1.7 million, earlier research from the Georgetown University has found.

Another analysis, from USA Today, found that funding the American Dream costs about $130,000 a year for a family of four. Median household income stands at about $74,450, according to the Census Bureau.

‘What went wrong?’ is the question we’ve been asking. How come the richest people in the world, in what should have been the richest period in their history — 1980–2020 — made so little progress…and actually slipped backward by most measures?

In our businesses and our private lives, pruning goes on all the time. Businesses go belly up. Investments fail. People are fired. Wives file for divorce. Customers go over to the competitor. People die. The sound of chainsaws is never far away. Like cutting off the ‘suckers’ on a fruit tree, unnecessary or unproductive limbs are lopped off.

In a sense, the whole idea behind Fed policies of the last 20-plus years was to keep the chainsaws off the job. The dead wood was propped up by ultra-low interest rates; bad ideas were financed with below-inflation loans; no-hope ‘investments’ drew in billions in EZ money. There was no discipline…no corrections. With phoney prices, often there was no way to tell what was a good use of money and what wasn’t.

One Nation, Under Debt

The most telling artefact of the period, 1980–2020, is the nation’s $34 trillion in debt. Each dollar is a mark of shame. Baby boomers wanted ‘something for nothing.’ They got it by leaving their sons and daughters the bill; giving them

nothing for something. Younger generations will pay, probably for their entire lives…and probably in the form of financial chaos and higher prices, for goods and services delivered to their elders.

How was it possible, they might wonder, that people so rich — the richest people ever in the history of the world — couldn’t pay their own way? Were they so strapped for cash that they had to put the costs for their wars and jackass programs onto their children? Did they think that their own plans…goals…and Christmas lists were so important that other people — even those who hadn’t been born yet — should pay for them? And that their children would have no spending plans of their own?

What the US needs is a good Husqvarna too.

More to come…

Regards,

Bill Bonner,
For Fat Tail Daily