Thread by @MaxGroucho1

Ok here’s my theory on why #uranium spot price has been weaker than the community’s expectations.

🧵

The primary narrative is that SPUT has catalysed the speed, and brought forward the timing, at which spot prices will rise.

Many #uranium investors expected to see a quick run up in spot prices following the introduction of SPUT. Many, including myself, were looking for a quick win. We had the playbook of 2007. That was caused by a flood. Now the fundamentals are many more times bullish. Why so cheap?

Dynamics in 2007 were different. The majority of U308 needs were accounted for through LT contracts. Spot was the market for the marginal pounds. When the flood hit, there were fear the LT contracts couldn’t be fulfilled so spot came in to rescue, carrying LT prices with it.

Fast forward to 2021/22. Every man and his dog knows there’s a fundamental LT supply deficit. Now comes in Sprott to swallow up the remaining pounds in spot. If you were the utility, would you be looking to buy in spot or would you be looking to buy in LT contracts?

I would argue that had Sprott not come along, the thesis would’ve actually played out as expected. Utilities would’ve started bidding in the market given the volume available. Since Sprott, why would you, as an utility, bid in an even thinner market to secure pounds? You wouldn’t

$SPUT turned out not to be the white swan #uraniumsqueeze event that investors had hoped. It is in fact the black swan event. It changed the path to price incentive. Having Sprott as a key participant has effectively changed the decision making and buying process for utilities.

Instead of going out purchasing on spot, they’re getting on the front foot on contracting.

So who’s now left in the spot market? Mostly traders and financial investors playing in an even thinner and more speculative market. So does that mean the thesis is dead?

If your expectations were to replicate the returns of 2007 within a couple of years, I’d say you can kiss that expectation goodbye.

But let’s remind ourselves on what the original thesis was. The thesis was never a prediction on spot price rise within a certain period.

Rightly or wrongly, equity prices have been tied to spot prices, not because it’s important — in fact it’s not important, but because it’s there! It’s the only thing investors have reference to on a daily basis.

The thesis was always about underlying supply demand mismatch and the utilities requirements and thus pricing incentives in order to close that deficit.

No one said it will be a get rich quick scheme. The destination hasn’t changed. The thesis hasn’t changed and is in fact now stronger than ever. What’s changed now is how we get to the destination.

We already know there’s contracting taking places. This confirms the original thesis. We know nuclear sentiment is changing. This confirms the original thesis. We know there’ll be more nuclear builds. This confirms the original thesis.

The only thing that hasn’t happened is that equity and spot prices hasn’t matched your expectations, and this has nothing to do with the thesis.

The beauty of the original thesis is that it is simple to understand and that the numbers don’t lie. The ugly part of the original thesis is that it doesn’t tell you when and how we get there.

Everything else (like Sprott, sanctions, Strategic Uranium Reserve) are narratives.