Most uranium market insights start with a top down macro thesis on a supply demand imbalance in the sector. After arriving at the conclusion that uranium prices are cheap, one is faced with the challenge of how to express that view in the market. The universe of uranium stocks is about one tenth the size of what it was during the last uranium bull market. Yet within the much smaller uranium sector there is still divergence between companies at different stages of development, and companies in different jurisdictions. Although the macro trend might form the initial thesis, implementing the thesis means identifying trends within the equity market.
In order to discern trends within the equity markets investors need to find the bes research resources. One example that came to us recently was Haywood Capital’s Uranium Sector Guide for 2020. Its an essential resource for any uranium investor. Haywood includes a general overview of the sector, along with a discussion of general equity market trends. We’ll be keeping it handy throughout 2020 as a useful reference.
Equity Trends for Uranium
There has been a general trend downwards for uranium equities. That is part of the macro disconnect that gets many contrarians interested in the sector. However, not all equities are the same. Short term there has been divergence between US, Canada, and other geographies:There has been a general trend downwards for uranium equities. Short term there has been divergence between US, Canada, and other geographies:
This is related to both geopolitics and geology. US listed uranium miners are currently being held hostage by policy uncertainty. The uranium working group report influences the whole sector, but its existential for junior miners in the US. Other jurisdictions such as Africa also face a lot of policy risk. In many cases they are in unstable regimes, and there is always the risk that assets will be seized. CAnada has the benefit of being a relatively benign jurisdiction. Mining and environmental rules are tough, but reasonable, and generally predictable, not arbitrary.
As for geology, there is also great variability between different jurisdictions. The Athabasca region in Canada has some of the highest quality assets in the world. There are some good assets in the US, although none as massive as the Athabasca. Similarly, in other regions, there is a wide range of quality. Kazakhstan of course has a large resource base. There are some good assets in Africa as well. Pricing of uranium stocks partially reflects the markets estimate of how good the mining assets are.
Equity performance by development stage tells another interesting story:
The greater the risk, the greater the potential returns. Arguably there has been a disconnect and inefficiency with explorers barely responding to news, and producers selling off dramatically. Of course, none of them seem to respond to good news in today’s environment. That will change when market sentiment shifts. When that happens explorers and developers will in some cases achieve absurd returns before being bought out by Producers, who will also achieve good returns.
Uranium Stock Picks
Haywood’s report highlights several Canadian and US companies. Here is a snapshot of Haywood’s Core uranium portfolio.
Check out the full report for detailed analysis of Haywood’s Uranium Stock Picks.