Buy or Fade Uranium’s False Rally

With all of the news coming out of Washington, D.C., it’s easy to lose track of one of the most important issues of the primary season last year: energy.

The inauguration is less than a week away. But of all the questions being asked about what Biden’s Administration will look like, few are discussing his deep divide within the Democratic party on energy.

Biden, once a strong opponent of nuclear energy, sort of became one of its champion’s last year.

The progressive wing of the Democratic party is vehemently opposed to reversing course on nuclear power. That wing’s position matches Biden’s number 2: Kamala Harris.

Therefore, it won’t be easy for Biden to unilaterally reverse the decommissioning of nuclear plants that is occurring across the U.S.

Once, 112 of these plants provided power for Americans. Last year, that number fell to 94, with another five already set to go offline in 2021.

But you wouldn’t know it from that industry’s suppliers’ stock performance.

Uranium’s Wild Ride

Last year, all kinds of factors lead to a record year for uranium companies. You can see that their summer and fall rally was only the start:

One of the biggest reasons why uranium did so well in 2020 was because of how poorly it has been doing the previous decade.

After peaking in 2007, uranium lost four-fifths of its value. That left the relatively niche uranium mining industry without profits for years.

But then 2020 came. And as with every other industry in the world, it changed the game for these miners.

Industry leader Cameco Corp. (NYSE: CCJ) had to shut down its main Cigar Lake mine multiple times. The mine, located in the hard-hit Saskatchewan province in Canada, had COVID outbreaks throughout the year. It is also the highest-grade mine in the world.

After reopening once, the second outbreak forced closure again in December. That’s the main reason why its competitors’ shares have done so well over the last month.

In total, companies like Denison Mines Corp. (NYSE: DNN) and Energy Fuels Inc. (NYSE: UUUU) are up 95% and 138% over the last 12 months, respectively.

Cameco relies so heavily on its Cigar Lake mine that it actually had to buy from these competitors to meet its sales obligations.

So, what happens now?

A Rally Built on Hope, Not Facts

As you can see, 2020 has created a wild situation for uranium and uranium miners. Not only did a somewhat proponent for its use gain the highest office in the country, the metal’s supplies were also decimated by the pandemic.

That’s the story those in the industry want to tell. But there’s a harder truth out there.

Biden won’t be able to move his party on nuclear energy as much as the industry hopes. His own VP is against it, let alone the progressives in the 50/50 Senate he’d need to ramp up nuclear power again.

As these plants continue to shut down, so does demand for uranium.

And of course, the supply side doesn’t look much better. Even with one of the largest uranium mines in the world offline for most of 2020 and into this year, prices for the radioactive metal haven’t soared as much as the miners’ stocks suggest:

Most of its price increase actually came before Biden’s nomination and the outbreaks at Cigar Lake.

This isn’t going to end well for the miners, whose shares have doubled during this period.

Cameco will eventually open up Cigar Lake again. And that will be the end.

There’s just not enough demand, even with a somewhat nuclear-friendly president coming into office.

It’s time to bail on this industry before it finally crashes back to earth. 

To your prosperity and health,

Joshua M. Belanger