A speculative rally fuelled by Reddit is juicing the price of uranium and investments with exposure to the commodity, leaving investors and companies alike wondering how long the run will last.
The Sprott Physical Uranium Trust, an exchange-traded investment that tracks the price of uranium, rose by 15.5 per cent on Monday on the Toronto Stock Exchange. Shares of uranium miner Cameco Corp., which have rallied 55 per cent since late August, ended the day flat after being up by 8 per cent at one point. Another producer, Denison Mines Corp., rose by 3 per cent on the New York Stock Exchange.
This year, retail traders on the social-media and chat-forum site Reddit have muscled traditional market-moving institutional investors out of the way, and driven up the share prices of companies such as Gamestop Corp. and Blackberry Ltd. to levels far above what analysts considered fair value. On a number of occasions, the share prices of companies have fallen back to Earth quickly after investors moved on to other sectors. Online speculators have also targeted the mining sector, with silver getting a huge boost in January owing to a similar Reddit-inspired rally.
Now, investors on WallStreetBets, a popular business chat site within Reddit, have zeroed in on uranium, pushing the narrative that the nuclear fuel will benefit from the move to greener sources of energy and helping drive the commodity’s price to multiyear highs.
“I’m throwing the kitchen sink at [Sprott Physical Uranium Trust] and [Denison Mines]” the user mudman97 said on the subreddit UraniumSqueeze on Monday. “Should be a hellova week for uranium.”
“If 2020 taught me anything – it’s that markets can move quicker and with greater magnitude than anyone expects,” user Grand_Routine_6532 wrote on the same subreddit. “Uranium is the perfect trade to take advantage.”
The current craze for uranium is all the more remarkable considering the commodity spent close to a decade in the doldrums. Many large nuclear power projects were cancelled after the Fukushima Daiichi accident in Japan in 2011, causing the commodity to sink. As recently as April, uranium was trading for less than US$30 a pound, after hitting US$140 in the late 2000s. On Monday, the commodity changed hands for US$43.75 a pound.
Bill Harris, a portfolio manager with Toronto-based Avenue Investment Management, which owns shares in Cameco, has watched the big rally in uranium stocks in near disbelief. While delighted that the firm’s investment in Cameco has worked out, the rapid jump in the stock means he’s setting short-term limits to partly cash out its position, while still maintaining a foothold to take advantage of any additional upside. “Fundamentals are out the window. You’re holding on cause you just got lucky,” he said. “How much money is just flying around now, that extra speculative dollar has now come into uranium and Cameco. So it’s crazy.”
But even before the Reddit-fuelled rally, the supply of uranium was tightening, meaning short-term bumps in demand had the potential to result in significant price movements. In 2018, Cameco, the world’s biggest uranium producer, idled one of its biggest mines, McArthur River, amid persistent weakness in the market.
Demand in the uranium industry has also increased because of the entry of institutional players such as Sprott Asset Management LP. Earlier this year, Sprott paid $14.5-million to reorganize Uranium Participation Corp. into the Sprott Physical Uranium Trust. It is one of the few investments on the market that gives investors exposure directly to the price of uranium. When an investor buys into the trust, Sprott must buy the physical commodity in the market to backstop that investment.
Tim Gitzel, the chief executive officer of Cameco, said the entry of Sprott into the market has been an important factor in driving up the price of uranium, but he also points to the company’s production cutbacks, as well as reductions from Kazakhstan, another major uranium-producing country. For these reasons, he isn’t worried about the company’s share price crashing if Reddit investors decide to bail.
“We see nuclear fuel demand growing with all the focus on electrification and decarbonization and everyone having net zero targets [on emissions] he said. “There is no path to that without using nuclear.”
Still, Mr. Gitzel said the company will wait and see what happens with the uranium market over the next month before making any kind of decision on a possible reopening of the McArthur River mine in northern Saskatchewan. “It’s the world’s largest high-grade mine. We hate having it down, but there was just too much supply on the market. So we’ll see.”
Before the current rally, Avenue Investments’ Mr. Harris thought the price of uranium might eventually hit US$40 a pound based on tightening fundamentals. But now with the price trading north of that level, he says all bets are off. “The only thing that matters in mining right now is uranium, " he said. “And we spent 10 years with absolutely nobody caring and it’s just extraordinary.”