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I just read the draft ( a perc) and I am literally shaking ( with excitement) . Seriously Sir Plunger takes us all to a whole new understanding with this piece. And talk about Actionable ! Not shy in sharing his pics !

oh….its just posted…..going back to re read .

Maybe I can steal something 🙂

shhhhhhhhh

“Uranium-Best Risk-Reward Sector for Investment

We all know uranium stocks are the most volitile in the universe, so how can they possibly be considered as the best risk-reward sector? Simple: the reward far out distances the risk.

This sector is now the best risk-reward investment I have EVER seen.

They are now cheap, hated and in an up trend…the perfect configuration to start shoveling money into. Here is a little project for you: Give Goldman a call and ask to speak with their uranium shop… you are going to hear crickets as there isn’t any. This sector is so throughly hated and bombed out that it is now number one on the cocktail party wincing list. Go ahead and try this at your Christmas office party, just mention you are dumping hard earned cash into the uranium sector and observe the facial expression of everyone. You will likely see a pained reaction, a wincing of the cheek and eye. The key here is when one gets the wince and it’s in an uptrend, its wildly bullish.

Let’s take a time out and think about what just happened with Cameco shutting down the MacArthur River mine. That is the equivalent of Saudi Arabia shutting down all of its production and the rest of OPEC not cheating! It is the industry saying No Mas. No more material to be supplied to utilities at these prices. The utilities have been playing chicken with the producers and the utilities just lost. Global cash costs of uranium production are 3 times spot prices and production is not going to resume until they balance. Deal with it.

The impact of this action is that the uranium market gets back into balance late next year in 2018. There has been zero capital investment in this sector over this cycle. That means since Fukushima an entire cycle of development has been bypassed.

The Uranium Bull market ahead

Rick Rule often explains there are two types of commodity bull markets. Supply driven and demand driven. A demand driven bull typically provides a nice steady uptrend, whereas a supply constrained bull is characterized by a violent upward spike in price as a means to resolve the supply and demand imbalance. Since it takes so long to develop new supply, prices continue to climb offering no reasonable entry to the latecomer. Couple this with the reality that demand is inelastic and the result is price rips vertical leaving bidders shocked. Guess which type of bull market uranium is headed into?

Next question: What is the biggest, most feared risk of a nuclear utility? Ans: Running out of fuel and then having to shut down the plant. Also keep in mind that nuclear fuel accounts for 3% of the costs of electrical production in a nuclear facility. This results in utilities willing to pay virtually anything for uranium. This of course is called price insensitivity.

At the peak of the last bull market the global uranium sector market cap reached $120b. Today it stands at $6b, with CCJ accounting for half. The average miner rallied 20X in the last cycle which is a hint as to what may lie ahead. Some say Cameco’s production shut down means they see a 2-3 year wait before price rises. That is possible, however the path is now clearly set for higher prices and game theory now will define the space. Once the first utility moves to purchase long term supply the rest will follow. It could turn into a rout. The time to get in is now.