From fuzzy idea to yes – or how u3o8 twisted my arm into submission hammerinvesting electricity dance moms choreography

##########

A couple of weeks ago I had the honor of being a guest on my current favorite investment podcast, The Mike Alkin Show. On it we discuss why the contrarian approach can be a profitable one and why so few investors are comfortable with it, how my 12-year poker career has affected my view on investing and we also touch briefly on a few mistakes I have made in my investing career so far. I will dig deeper into this last part in a future post because I think there are some lessons to be learned – especially on what not to do!

As Mike has played a role in my uranium education and since many people have asked me how I generate investment ideas I thought this would be a great segue into how uranium initially caught my interest and perhaps an example of how one can go about turning a fuzzy idea into a possible investment. (Note that this post is only meant to be an example of the initial stages. It won’t cover the work on individual companies as that would be outside the scope of one article.)

In early January I was looking around for new investment ideas and thought Xi Jinping’s speech to the 19th Party Congress could be a starting point. electricity lesson plans year 6 Those are held every five years and they have all been fabulous at predicting what was to come. When Chinese leaders decide on a long-term idea, unlike in a typical western democracy, they follow through. Probably due to a different electoral system (read: dictatorship!).

What was interesting about this particular speech is that whereas previous five-year plans have focused on GDP growth at all costs! This speech was different in that the environment is mentioned again and again and a recurring theme is how China needs to ”make our skies blue again”. electricity outage in fort worth The Health Effects Institute estimates that more than 1.5 million die from air pollution in China.

Another issue came up when I started looking into why analysts expected Japan to decrease their imports and that was related to the Fukushima accident which brought down all of Japan’s 54 nuclear reactors. Most of those were expected to come on soon after but it wasn’t happening at the pace everyone thought it would due to constant court delays. But since it seemed to be a question of time the whole LNG idea started to seem more risky to me and it warmed me up to the idea of nuclear power. gasbuddy diesel And one thing I didn’t initially understand was that LNG wasn’t THAT much cleaner than coal. electricity and magnetism worksheets On an index where coal is at 100, natural gas is at 45. On that same scale nuclear energy is somewhere between 0 and 1! Time for the left to wake up to this fact…

Swedish nuclear power had been on the retreat since 2014 when the owners decided to close down four of their ten remaining nuclear power plants due to the low price of electricity. I had been following the electricity space and the political discussions quite closely since then and my impression was that the owners unsuccessfully had tried asserting pressure on the Swedish politicians to give compensation for delivering baseload energy.

Being a deep value guy a price chart like the above is interesting. The first thing I usually do when a sector peeks my interest is to read the annual reports of the biggest companies in the industry, initially at least those parts give a sector overview. That meant I started with Cameco and what struck me immediately was their mentioning of the fact that the price of uranium was way below the marginal cost of production, as could perhaps be expected by looking at the graph.

Then in about 2004 China started getting interested in nuclear power and due to flooding in some large mines that were supposed to come online this created a squeeze on both the supply and the demand side. electricity 4th grade worksheet The long bear market had made exploration unattractive so when demand started showing up suddenly there was fear there wouldn’t be enough uranium available which along with financial players rushing in created the panic that can be seen in the chart in 2007 and so the price overshot by a large margin.

In more normal liquid markets the price would be hurt by such a squeeze but it would also quickly correct after the marginal players had been knocked out. types of electricity generation methods This wasn’t happening and in the first weeks of research I didn’t really get a firm grip as to why even though I had read the reason in Camecos annual report and had seen the graph that explained it. For some reason the significance just didn’t register.

So I started looking for other views on the sector and for that Real Vision is often top notch. This is a subscription-based financial media service where people who have dedicated large parts of their lives to understanding a particular field are being interviewed in long-form. I have spent countless hours as a fly on the wall during my daily long walks with my dog listening to world-class experts in different areas. And here I found two excellent presentations from Mike Alkin of Sachem Cove and from Adam Rodman of Segra Capital that really hit home the point that was right in front of my nose:

I would spend a few minutes studying the graph below, which is essentially the same as above but with demand added in. gas bloating pain Note that the numbers on the right side, the price, is only applicable for the red line. For all other information, the volume in millions of pounds (Mlbs) is the reference. What the graph tells you is that from 2005-2012 the contracted volume was way above annual demand so the decline in price from 2012 should come as no surprise, especially when factoring in Kazakhstan and Fukushima as well. Those contracts are now rolling off and new ones will have to be signed in the coming years and it will be done at prices that are above the cost of production, which is at least north of $50/lb.

Hi Andrew, if you want the best downside protection go for Uranium Participation or Yellow Cake plc. None of those are miners. They simply buy and hold uranium and both of them at trading at very attractive discounts right now which I don’t think will continue going forward. gas 85 I would personally have no issues with shoving large amounts of capital into those two and I would sleep very well at night.

If you want a miner that is almost as safe Cameco is the only option imo. I don’t understand what you mean by the following: “I’m worried about the depletion of their legacy contracts that they’re getting substantial cash flow generation by fulfilling them at spot prices…. a tide that will turn severely against them if they were still writing long term contracts over the recent path.”

Their situation is such that they are making money on those contracts by buying in the spot market and pocketing the difference. As spot rises so will the value of their contracts, so there is no big threat there. Also, in my opinion Kazatomprom is less of a threat than the non-transparent inventories. Kazatomprom has limited levers if they really wanted to flood the market, which they probably wouldn’t anyway even if they could now that they are listed and answer in some shape or form to shareholders.