Why This High-Profile Investor Is Piling Into Uranium

Eric Fry By Eric Fry, Macro Strategist, The Oxford Club


Uranium is heading higher…

At least according to the CEO of Uranium Energy Corp. (NYSE: UEC), Amir Adnani.

On Saturday, I shared a conversation I had with Amir about the four factors that could boost uranium prices.

But if you’re still not convinced about the investment potential of the uranium market, today we’re going to talk about why high-profile investors are piling into the uranium market.

Eric: It seems we keep hearing the story that Japan is about to restart its reactors. And yet that hasn’t happened. What’s the latest on this story?

Amir: Yes, Japan has been way behind schedule in restarting its reactors. It’s been a total disappointment. I’m looking at a report I have in front of me that was published in 2014. This report forecast that by 2017, 29 Japanese reactors would be back online. But there are only two back online.

Japan is quite a consensus society, so it’s created a long and onerous process for these reactors to be turned on. You’ve got to have regulatory approval, federal-level approval, municipal approval, etc. So that’s the reason it’s taking so long.

But the bottom line is that you’ve got a government in Japan that says 20% of power in the country will come from nuclear energy by 2030. So you know that commitment is there. And there are more than 20 applications [to restart reactors] currently under review with the nation’s Nuclear Regulation Authority. Twelve of those have been approved and are awaiting local government approvals.

So some of the longer-term hurdles to bringing reactors back online in Japan have been cleared. We can expect to finally see some good news come out of Japan instead of six years of delays after delays after delays. And so I think Japan can go from being a negative for the uranium price to being a positive and a driver of the price.

Eric: Moving from the macro picture to your company specifically… What’s happening at your company that you think is indicative of important trends in the uranium market? For example, are there any big players who are trying to secure long-term supplies at these prices through investment in your company?

Amir: Yes, we have a number of points to make about the company. First of all, out of about 420 reactors currently operating in the world, about 100 of them are in the U.S. So the U.S. today is the biggest nuclear market and biggest market for uranium in the world. It’s a great market to be in. But can you believe that as big of a market as the U.S. is, 95% of its uranium requirements are being imported?

Eric: So you’re emphasizing this point because you operate in the U.S. Is that correct?

Amir: Correct. Ninety percent of our projects are in the U.S.

At the current spot uranium price, we’re not producing uranium to sell into the market because we’d just break even or even lose money. We’ve put our production on hold, but we’re fully permitted and we’re what you would call a production-ready company. The facility is there. The projects are there.

But at the same time, when the price of uranium pulls back like it has, we put production on hold, we keep our costs down, and we focus on making acquisitions, or on permitting and developing our pipeline. And that strategy has worked well in the sense that it has won the support of some of the biggest investors in the business, whether it’s BlackRock or J.P. Morgan in their mining-focused funds or the wealthiest man in Asia, Li Ka-shing, out of Hong Kong.

He sees this tremendous growth of the nuclear industry in China taking place, and he wants to invest in it, but he can’t because in China it’s the government that owns the entire nuclear and uranium mining industries.

So the only way to get exposure to that growth is to invest in uranium companies like ours. Although we are focused on the U.S. market, the price of uranium is being driven by the global expansion of nuclear power that’s taking place in the markets.

Eric: Right. So Li Ka-shing has invested in your company, correct?

Amir: He’s been a backer of our company for almost four years now.

Eric: Is he investing elsewhere in the uranium market?

Amir: Yes, there are two uranium companies that he has invested in. One is our company and the other is a Canadian exploration-focused company called NexGen Energy (CVE: NXE). Both NexGen and our company are among the top five holdings in the only uranium ETF in the world. [That ETF is the Global X Uranium ETF (NYSE: URA).]

So if you want to invest in the uranium sector today, there are probably only five or six companies in the world that have the production capability our company has. So my point is that there’s a scarcity factor when it comes to the uranium sector.

Commodity businesses are very cyclical. You know you’re not going to have a cycle that doesn’t eventually turn. Because when the price of a commodity falls below the marginal cost of production, one of two things happens: Either the lights go out because companies can’t afford to produce uranium anymore or the price goes up. And I think that’s the kind of bottoming effect we are seeing right now in uranium.

And I think we’re getting a turnaround right now that deserves attention from investors.

If Amir’s outlook is on target – and I think it is – uranium could be one of the best-performing commodities of the next couple of years.

I don’t expect the uranium price to rocket higher immediately. But all the pieces are in place for a new bull market in uranium. So I do expect its price to be significantly higher by the end of 2018.

Good investing,