Thread by @BambroughKevin

The biggest problem at Cameco is the same problem they had in 2003-2007 and that’s ego. Gerry Grandey thought he could control the uranium market. 0% chance of the price going to $50/lb he explained with glee as he told us how he could ramp up production and satisfy the industry

They take a view that price spikes are bad for them in the long run cause then other mines get financed and inevitably there will be over supply and low prices to follow. Fair enough. There’s a cycle in all commodities. But let’s call it what it is. They are timid & conservative

They think they this is the responsible approach and will create stability. But, to people who look at all the risks and understand it’s essential to not try to control your commodity market but instead change with the swings we view Cameco in a different light

For me and the fund managers and investors I talk with, Cameco has been foolishly giving up massive upside at the start of a bull while creating more financial risk for themselves.

You simply can’t protect against all risks to production and costs that many years out to insure decent profitability. If you try you just might create more risk. Big currency hedges? Input cost hedges? Tough to hedge labour costs. And all hedges have counter party risk.

Hedges also all cost money as no one gives you a hedge for free.

If your interested to see how an industry changes and how smart aggressive management make real money consider the bhp metallurgical coal pricing history.

For years bhp would send execs once a year to japan to negotiate the price of met coal using in steel making for the following year. All the other smaller met coal producer globally would follow their lead and sign deals at the same price with steel companies.

Some would have even have long term contracts that would specifically state that the price will be the price bhp agrees to with Japan. This went on for years and years until I think the company Fortress Coal (please correct if I remember the name incorrectly) rocked the market

Fortress was formed by a bunch of guys that left Glencore and these guys were sharp. They had significant coal assets but were still small compared to bhp. In the early 2000’s in a year when the market was tightening up big time, they sat waited for bhp to settle.

This was about 20 years ago and I’m too lazy to look up all the numbers. But I think bhp agreed to a raise the price from $160 to $200/t. Then likely went for an amazing fine Japanese dinner, enjoyed sake and probably some karaoke then flew home pleases with themselves

In the weeks to follow the celebratory feeling turned to embarrassment cause Fortress refused to agree with steel makers at the BHP price. Apparently some steel makers lost there minds and were extremely angry with this break in tradition but they relented and agreed to +$300/t

Fortress probably ended up netting 3-4x the margin that bhp got that year and it was a company maker.

So back to $cco and understanding how they think vs how they should think. Investors should consider $cco and value them like a utility company. But with more risk.

They are shooting for a responsible partnership like relationship with utilities only the let the utilities crash them in a bear and are too scared to give it back in a bull.

Consider this, would you rather them ramp up production with a goal of making $30-40t on 25mln tonnes?

Or tell the utilities to pound sand and go for $100/t on 9mln tonnes from cigar alone.

$100/t x 9mm = $900mln vs
$36/t x 25mm = $900mln

Uranium is a finite resource and should be valued as such. It should be rushed into production and sold. Cameco’s Mcarthur River

Has huge infrastructure value and lbs in the ground value. The shares will trade to value this asset more as the uranium price rises. If they do piles of shit deals and sell forward the production in low value contracts they destroy the option value and create risk.

They are gonna learn again this cycle that they can’t control the market. The can foolishly rush Mcarthur into production and sign piles of under market contracts to try to keep market share. But they will just give up billions in profits assuming the bull market continues.

In a bear market their contracting policy allowed them to achieve better than spot pricing as Paul indicated in their response to him. Ya.. no shit. But I’m a bull market their policy will make them get less than spot consistently. Not only that but due to..

Bull market cost inflation and hedging costs, and the fact that prices can and likely will go up to the mid to high $100’s /lb when you consider the ‘margin preservation they gained during the bear vs the margin they will throw away in the bull it’s not even close.

The contracting policy should be considered and valued over the full bull bear cycle and the conclusion is obvious. It’s not worth giving up huge bull market dollar profits to make pennies in the bear.

If you want to play this uranium cycle well then own companies that are open to getting full pricing based on spot. They will 100 percent those giving discounts to spot during the bull.

For those that have nice gains on $cco consider it’s market cap vs that of $u.un

Sure $cco can still go up because of its inclusion in the uranium etfs and the fact that people that don’t understand the sector will go to it cause of its size.

But, I believe that #uranium bull market minded investors should sell into that fund flow.

$cco $ccj has a market cap of of $9bln usd vs $u.un $sruuf market cap of $1bln usd.

I promise you if $1bln shifts from $cco to $u.un uranium will be at $180/lb and lb and that’s 3.5x for $u.un and $cco will likely struggle to keep pace at best.

At worst $cco $ccj will be suffering massive cashflow burn as they struggle to bring on Mcarthur river and are forced to buy lbs at spot and deliver into the dog shit book of contracts they have written. It’s hard to know how bad the cashflow situation could get for them

Cause all the deals they’ve done and contract details are fully transparent. I have no idea the full extent of the upside they’ve given away in contracts, I don’t fully understand the terms of the lending agreements for physical that they have agreed to (both to borrow and lend)

We have no idea what counter party risk could be there. If uranium loans will actually materialize when needed desperately. Also mine start up risk could be huge. 1 year late in a $150/lb spot environment could burn +$1bln in cash

Bunch of hedge guys have been messaging me asking questions. I bet some that might be really aggressive and buy $urnm, hedge out the Cameco exposure in the etf and put the proceeds of that hedge into $u.un

I think this last point is likely the best way to trade this uranium market. Interested to hear your thoughts.

$urnm 12.57% $cco weighting

Trade would be:

Long $100 in $urnm
Short $12.50 $cco / $ccj
Long $12.50 $u.un

I think this trade will be a massive winner.

I’ve gonna scale into this next week. Probably decide on a total dollar amount I want to put into it and spread it out over 5 days equally.

Good luck and remember.. if you don’t like what I’m saying you can #gofuckyourself

And as a reminder my tweets are just the random thoughts of a self taught university drop out with questionable mental stability. Should not be considered investment advice as I have zero qualifications other than making a shit load of money in resources and retiring at 43

Sorry if some of you missed the hashtag #gofuckyourself

Too many followers and too many jack asses for me to begin to try to respond to all.

Seems most overwhelming appreciated my comments and efforts. If you don’t, please just block me, not debating the woefully uninformed