Thread by @BambroughKevin

Assessing / estimating #uranium demand isn’t about looking at the current spot market. When I talk about demand exploding, I’m looking at restarts, life extensions and new builds.

When we see announcements that Belgium or Finland are adding 10-20 yrs of life to their reactors

That instantly creates a large and unexpected jump in future demand. The #nuclear industry moves very slowly. The decision to extend life to reactors were not in the WNA supply demand forecasts that were already long term bullish. They are now wildly bullish…

But these utilities will still make purchases in steps. Official extension approvals must be papered, budgeting and financing sorted and approved. And the first effort to seek out future fuel supplies will be talking with fuel buyers who will put out RFP’s to mining companies

These RFP’s will typically be seeking terms for 10 year supply agreements. Cameco has been the big contractor/supplier to the contract market over the last two years locking down around 70mln lbs of supply agreements

In the coming weeks and months we will hear of a large influx of RFP’s going out to producers and potential producers. It’s hard to say exactly when but we will certainly see the same occur that happened in 2007.

Producers that have locked in fixed or capped contracts will be regretful and be crapped on by angry shareholders as the market moves higher. One by one the #uranium majors that are willing to sign contracts at lower prices will sell out.

Utilities will eventual be forced to negotiate with the try bull market believing CEO’s. Borshoff, Adnani, Sheriff, Craib, Munro, Curyer. Etc.

These guys will be much more reluctant to sign caps and will start to demand higher and higher floors and much more gradual caps

This is what happened last cycle and it ends up eventually sparking significant spot market buying by utilities that simply can’t get the long term coverage with certainty of supply and also certainty of price.

I add up all the unexpected future demand that is popping in the last 2 months it’s outstanding. When you compare it to the timelines needed to bring on new mine supply, I can say with confidence that it’s going to be extremely difficult for all these buyers to get 10yr cover

In a rising market utilities typically do their best to avoid spot and instead tie up as much supply as they can in the long contracts. Once it becomes apparent to them that they are taking risks in the contract market that an emerging producer might have mining problems…

Mining start up delays or under performance issues. For some of the emerging producers there’s significant financing hurdles to cover exploding capex costs. Plus with supply chain and labour uncertainty in most jurisdictions it will be clear that there’s significant supply risk

And this is also in a climate where the world is increasingly concerned about Kazakhstan’s $kap future and Geo political risk.

Also as they hear back from these emerging producers that they can’t get the price caps they are used to, they will get increasingly uncomfortable

The combination of a perceived supply and price risk in the long term contracting market will spur a change in the market dynamics.

This is when the herd of fuel buyers will start fighting for spot supplies to add some certainty to their utilities.

There’s been a trend in all companies to focus more on risk. The “risk committee’s” at major companies are now all shoved into the spot light. Especially the European utilities. Their stressed and scrambling due to gas and coal shortages that were already significant prior to war

The power industry also under huge political pressure from the populace and governments. The economy, national security, inflation etc dominating headlines and power producers problems and lack of planning is front and centre

I’ve detailed on many occasions how irrelevant the #uranium price is in the context of global energy / power prices. Security of supply is now all that really matters. The #nuclear industry is now becoming a mainstream topic and investor interest is going to really ramp up

The big #uranium etfs $urnm $u.u $sruuf will see large inflows. Many large funds view the #uranium sector as I investable because there are so few companies and so little market cap. But, as the sector rises, liquidity improves, and also banking/broker coverage.

The nuclear industry will be seeking significant financing help. Governments, pension funds and mega funds will be looking at financing utilities debt and equity to build new nuclear facilities as well as nuclear fuel services. Should be over couple hundred billion invested…

Serious dollars to fund new nuclear builds. You can bet that financiers of these emerging projects will want to see long term fuel supply agreements. Again the main concern will be certainty of supply.

Last cycle we say prices rise to $140/lb or about $200/lb inflation adjusted

$200/lb equates to 1c per kWh in the electricity price. It’s irrelevant in the current energy market climate. I’ve outlined all the reasons why this bull market has more bullish supply demand fundamentals that the last. Every single factor is more bullish or far more bullish

That’s why I’m sticking to my forecast that the #uranium price will test and likely breach the $200/lb level this cycle. You can find a lot of these points on supply demand factors in my profile pinned tweet where I also discuss over feeding that’s about to occur

All this said, as the uranium price runs over $100lb the risk to reward will poor relative to when it was in the $20’s back in 2020. Even with a $200/lb target. At $100/lb it’s a rather boring 2x for investors that hunt for 10x stuff in resources

Stock selection will be increasingly key and we should see companies that have skilled exploration geo’s and good properties really take off. Those that can grow lbs in the ground economically will be well rewarded.

Aside from hunting for those, I’ll be continuing to allocate to other resource sectors with companies that appear to me to present the best risk to reward. Gold, silver Molybdenum, Tin, Tungsten, met coal and other minor metals are of high interest to me.

Hope you enjoyed my Sunday afternoon resource market thoughts. Hope ya’ll have a good week but most of all I’m hoping for peace for Ukraine.

Thread for new #uranium investor and those that just want to review why they should have high conviction

https://twitter.com/bambroughkevin/status/1500604313361600513