Publisher's Note: I was recently in Colorado with fellow Outsider Club editor Gerardo Del Real for the Beaver Creek Precious Metals Summit. Gerardo and I had plenty to talk about, but the uranium industry stood out.
Several factors are causing uranium prices - along with uranium stock prices - to rise, and all signs point to what we've seen so far just being the start.
Join in on our conversation about what's happening, where it goes from here, and how we can profit.
To your wealth,
Nick HodgePublisher, Outsider Club
Gerardo Del Real: This is Gerardo Del Real with The Outsider Club. Joining me today is Outsider Club founder, colleague, and friend, Mr. Nick Hodge. Nick, how are you today?
Nick Hodge: I'm doing well, Gerardo. We're in beautiful Colorado here in the fall season for the Beaver Creek Summit. I've never been. The weather is nice, companies are good, the market not so good. But it'll turn.
Gerardo Del Real: You know, an exception to the market not being good is the uranium space. You called the bottom in 2018. What led to the call? I mean, the spot price is up over 35% from the 2018 low, and a lot of companies are starting to tick up.
Nick Hodge: When you've been calling the bottom for the past three years, sometimes you get lucky. I think the market just finally decided to turn. And there were some catalysts that led to that. I call myself a blind squirrel sometimes, and I say I find a few nuts here and there. And that call in January, I guess, was one of them.
But we had seen the Kazakhs say that they were going to begin to cut supply. That's the largest producing nation of uranium in the world, some 40% of supply. Cameco (NYSE: CCJ)(TSX: CCO), the world's largest publicly-traded producer, then announced they were going to make major cuts from some of the largest mines in the world. McArthur River, for example.
And so that was a catalyst, really, for the market to wake up and say, "Hey, there's something very real going on with uranium here." The market wasn't making the price go up, because remember, the spot price at the time was around $20 a pound. No one makes money on uranium at $20 a pound.
And so it was like looking at a train. Who's going to blink? Is the market going to do it itself? And obviously that didn't materialize. And so the biggest producers were just like, "You know what? Hey, we're going to exercise our force majeure here, and we're not going to produce." And so we've seen the uranium price come up from $20 a pound to $27 a pound. That's the highest it's been in about three years.
We've seen some of the equities follow suit, especially some of the more entrenched names and some of the more well-known names, especially here in the United States, for reasons I'm sure we'll discuss in a second. Names like Energy Fuels (NYSE: UUUU)(TSX: EFR), for example.
And so, you know, we're still nowhere near the prices that we need for producers to be able to supply. I think people forget that it's 20% of clean baseload electricity here in the United States. And, look, at some point you can't bring minerals out of the ground at a loss forever, or at all. So the price has to rise, or as everybody quotes Rick Rule, "The lights go out."
Gerardo Del Real: You mentioned the mine closures. Those mines that were closed, and the production cuts, came from the highest-margin, lowest-cost producers in the space. What companies do you see benefiting disproportionately from the current uranium space, and why?
Nick Hodge: Well, I like U.S. companies right now. We can talk about the Section 232 petition that's working through the Commerce Department. They initiated that a couple of weeks ago, and they have 90 days, I believe it is, to make a report to the President. And then he has to make a decision on whether or not to impose some sort of structure to help incentivize U.S. domestic uranium production. Because right now, it's at historic lows. We produce only 3% of the uranium we need to supply our largest nuclear utility fleet in the world, some 99 reactors. As I said, 20% baseload power.
And so with or without the Commerce Department, the United States needs to produce more uranium, just as they needed to produce more oil five, eight years ago. And we saw what happened with the shale boom, when we had the technology to bring it out. But we have the technology here for uranium as well. We have great in-situ assets in Texas, and Wyoming, and South Dakota. Some companies that are unhedged like Uranium Energy Corp. (NYSE: UEC), for example, that's just blatantly said for the last couple of years, "We're not producing. We're not selling it to this market." Entirely unhedged, and so when the price goes up, they're able to flick their switch because their processing plant is fully constructed.