Doug Casey on uranium — ‘It could easily quadruple’
From Nick Giambruno, Senior Editor, International Man:
In November of last year, I said uranium had entered a new bull market. I recommended a “best of breed” uranium company in Crisis Investing. It pretty much ticked the bottom. I think there are massive profits to be made in the uranium market in the months ahead, just as there were in previous bull markets. To get some perspective, I spoke with Doug Casey, who has made a fortune for himself and many of his readers in this unique market.
Nick Giambruno: The story of Paladin Energy is a great example of why I’m so excited about this new uranium bull market.
The company leaped from one penny to $10 per share during uranium’s last bull market. That’s a 1,000-fold increase.
That means a $1,000 investment could have exploded into $1 million.
Even the worst-performing companies in the uranium sector delivered 20-to-1 returns.
Uranium can deliver these almost unbelievable returns because of unique supply-and-demand quirks that create colossal bull and bear markets.
Doug, you recommended Paladin during the last cycle. What’s your take on uranium today?
Doug Casey: I wrote a very long and thorough article on uranium and nuclear power in October 1998 for my newsletter, where I recommended several uranium stocks, including Paladin, that subsequently—about two years later—all exploded upwards in value.
When the market wants into gold stocks it’s like trying to force the contents of Hoover Dam through a garden hose. In the case of uranium stocks, it’s more like a soda straw. It’s a very small market.
These wild imbalances in supply and demand, accompanied by equally wild swings in price, often surprise people who aren’t familiar with the resource business. But it is the very nature of the beast. And one of the reasons speculating in it can be so profitable—if your timing is good.
It’s really only possible to raise money to discover deposits and build mines when prices are high, because that’s when the typical investor is willing to finance companies and thinks he’ll make a killing. Of course the industry takes advantage of that window, resulting in an immense amount of new capacity.
Meanwhile, the same high prices that encourage new production also start to discourage new consumption. Although that’s only marginally true with uranium, because the cost of fuel is trivial—no more than 5% worst case—of overall costs. Which means by the time the new production hits the market, after a time lag of several years, both prices and physical demand have collapsed—as have the share prices of surviving companies.
That is when professionals who understand the way these things work open up their checkbooks, because the resource business—oil, precious metals, grains, uranium, you name it—is as cyclical as the seasons of the year. It’s just that each commodity has its own peculiarities.
The uranium market like that of most metals is highly cyclical and very, very volatile. The time therefore to buy is when prices are low, which is exactly when most people are afraid to act.
Nick Giambruno: Now seems to be one of those times.
Doug Casey: Right now uranium is very cheap again. It’s selling for under the cost of production, once again. So, I like uranium a lot.
When commodities sell below production costs for long enough, the producers go bust, and supplies drop. Then prices rise and production eventually goes back up.
At the peak of the last uranium bull market, in 2007, there were about 300 uranium exploration companies. Now there might be a dozen, mostly dormant.
Higher uranium prices will predictably switch investor sentiment from bearish to bullish. Then, as Wall Street belatedly reacquaints itself with uranium, companies will get value for assets which nobody could care less about today. It’s an eternal cycle, and quite predicable—except for its timing.
Nick Giambruno: I think we’re in the very early stages of a new uranium bull market. I expect the investment returns to be at least as explosive as they were during previous bulls.
The price will likely overshoot, since it will take years for production to catch up with increased demand. And demand for uranium is certainly increasing. New nuclear power plants in China, India, Taiwan, and South Korea guarantee it.
Right now, 8% of global uranium demand comes from China. But China is expected to overtake the US as the world’s largest uranium consumer by 2030.
The Chinese think nuclear energy is the best solution to their huge air pollution problem. The increased demand from China alone should ensure that uranium prices rise.
Doug Casey: I doubt, especially in view of the fundamentals, that this will be the first bear market in history that’s not followed by a bull market. As the price of the commodity rises, the shares of producers should rise disproportionately. By 10 times? It’s happened before. And shares of exploration companies might increase exponentially.
I’m of the opinion that solar is—after 40 years of development—finally becoming economical, and will finally have its day in the sun, as it were. Solar finally makes practical sense.
That said, nuclear will remain the safest, cheapest, and cleanest form of mass power generation for a long time. Most people know nothing about the technology other than what they hear in a two-minute TV rant. Despite Einstein having been quite correct when he said, “After hydrogen, stupidity is the most common thing in the universe,” reality will win out in the end. Nuclear is the way to go.
Nick Giambruno: I think Trump’s election signaled the birth of a new uranium bull market.
Trump likes nuclear energy. It fits right in with his “America First” platform. And it’s critical for securing the country’s energy independence.
He’s said, “I’m in favor of nuclear energy, very strongly in favor of nuclear energy.”
Trump is also enthusiastic about nuclear weapons. He has said:
The United States must greatly strengthen and expand its nuclear capability until such time as the world comes to it senses regarding nukes.
The comment was aimed at Russia, the world’s other major nuclear power.
Russian President Vladimir Putin got the message. The same day he said, “We need to strengthen the military potential of strategic nuclear forces.”
Then Trump replied:
Let it be an arms race. We will outmatch them at every pass and outlast them all.
The world’s two largest nuclear powers are calling for more nuclear weapons. This is a huge boon for the uranium market.
Doug Casey: Well. The last thing the world needs is more nuclear weapons. But that’s probably in the cards…
But with a little luck we’re on the verge of a renaissance of nuclear power in the US. More certain, and more important, however, is that there are hundreds more reactors being planned in China, India, Russia, and other Third World countries. There are tremendous advances being made in nuclear technology, as well.
In my opinion, now is the time to act. This is especially true because of Donald Trump’s election. He’s actively working to promote the building of new nuclear plants and ease the burdensome regulations on mining uranium.
Now this has sparked a new bull market in uranium, but so far, it’s just barely come off of historic lows. It could easily quadruple from current levels, and even then, it would still be below its previous highs.
The real profits; however, will be in the shares of uranium exploration and mining stocks. It’s not unrealistic to expect the group to move 10 to 1. Some individual stocks will do much better. In past markets there have actually been 100 to 1 shots. Uranium stocks now present a rare opportunity in my opinion.
Nick Giambruno: So Doug, how do we find the next Paladin-like returns that could turn $1,000 into $1 million?
Doug Casey: The trick is to find companies that have the business plan, the knowledge, and the resources (both geological and financial) to exploit it.
The type of company I want should now be buying marginal resources and have the ability to put them into production quickly, preferably using fixed price contracts. To do that, they must have knowledgeable, reputable uranium people in place now. In a few years the sector will again be flooded with Johnny-come-lately promoters. That’s not when you want to buy…
Last, let me reemphasize, the companies you want must have the financial backing to allow them to survive until the inevitable becomes imminent.
Nick Giambruno: Thanks, Doug.
Doug Casey: Thanks, Nick.
Nick note: Months ago, I recommended a “best of breed” uranium company in Crisis Investing. My subscribers are already sitting on a double-digit gain as of this writing.
Of course, I can’t tell you the name of this company. That would be unfair to subscribers. But I can tell you why I’m so bullish on it.
This company has the upside of a junior exploration company—think 10-bagger or better. But it’s very low-risk.
This is the kind of trade we look for in crisis markets. The risk/reward is skewed in our favor.
In the last uranium bull market, this company’s share price rocketed 3,600%. That’s a 10-bagger almost four times over. I expect it to do at least as well in the coming uranium boom. Click here for more details.