Oct 30, 2023
In a continued effort to bring you behind the scenes with our investing team, we're going to be profiling some of our biggest thematic bets across our equity strategies. Today, we have part 1 of a 2-part series on uranium: the natural resource behind nuclear energy that has become one of Titan's most significant thematic investments.
We’re invested in four uranium stocks across our strategies: NexGen Energy (NXE) and Denison Mines (DNN) in Opportunities, and Cameco Corp (CCJ) and the Sprott Uranium Miners ETF (URNM) in Offshore.
Our Senior Analyst John Bottcher even made a recent research trip to NexGen's facility in Saskatoon, Canada that we'll recap in part 2. The above image is a teaser of his helicopter flight to their primary mining site.
Click here to watch a video recap, or keep reading for an executive summary.
01. Nuclear is clean, safe, reliable, and here to stay.
11% of total power generation globally (and 20% in the US) is already dependent on nuclear power, and geopolitical conflict is only accelerating the demand for it.
02. There isn't enough uranium to meet demand.
When various factors coalesced into a prolonged uranium bear market, the two largest producers cut production until uranium prices were able to recover. Now, the tables have turned and a supply/demand imbalance is rapidly accelerating.
03. We're reaching an inflection point.
This supply/demand imbalance may be about to accelerate even more rapidly, as over the next couple years the vast majority of U.S. utility companies will need to re-sign long-term contracts to secure nuclear resources for the next decade. Prices could appreciate rapidly.
NexGen Energy (NXE)
A pre-revenue, development-stage newcomer with industry-leading economics. Will need to raise external capital before production starts in ~2026, but is well-positioned with high-profile investors and very strong mineral assets in Saskatoon, Canada. We entered at what we believe to be a discounted valuation with a high margin of safety.
Denison Mines (DNN)
One of the largest global uranium companies, with one of the strongest portfolios of uranium properties – located in Alberta's Athabasca Basin. DNN also employs advanced mining techniques that give it higher earnings potential relative to peers. However, they're currently unprofitable, and are dependent on the rise of uranium's spot price to fund future projects.
Cameco Corp (CCJ)
Cameco is the second-largest uranium supplier in the world, and like NXE is also based in Saskatoon, Canada. They have a massive amount of supply (455 million pounds) of high-grade uranium assets, a strong balance sheet, and compelling unit economics. Their operations are highly complex, though, and we're monitoring their ability to execute to try to mitigate risk.
Sprott Uranium Miners ETF (URNM)
A uranium-focused ETF that gives our Offshore strategy a way to gain physical uranium exposure. URNM’s 2nd largest holding (13% as of 10/23/23) is the Sprott Physical Uranium Trust which holds physical uranium tied to the market price-per-pound (spot price) of uranium. A spot price increase due to the supply/demand imbalance accelerating would directly benefit URNM.
Our uranium thesis has played out even better than expected, driven by the supply/demand imbalance accelerating in each direction beyond our expectations. Major factors:
Rising geopolitical tensions: Global oil and gas sanctions and the deepening EU energy crisis are perfect examples of the need for sustainable alternative energy sources – which lead to nuclear as the solution.
Large investment vehicles stockpiling uranium assets: The Sprott Physical Uranium Trust is an “800 pound gorilla” that’s been stockpiling uranium via its investment vehicle. Since August 2021, Sprott has taken ~63 million pounds of uranium supply out of the market - equivalent to 25%+ of annualized demand.
Since initiating our uranium positions in 2021, we’ve seen performance of up to +68% to date.* (as of 10/23/23)
Certainly correlated to our performance, uranium’s price-per-pound (spot price) has increased more than 100% since our initiation of uranium positions – from $32.40 in July 2021 to now $71.58 as of September 2023.
Lastly, for context, uranium investments have also far outperformed other commodities in 2023 year-to-date:
Uranium has been and will likely continue to be a very volatile commodity. We don't expect performance to be “up and to the right,” and nor should you. There are a variety of factors that we expect might create a bit of a roller coaster for uranium prices and stocks, including:
Global politics and regulations: Uranium is subject to strict regulatory oversight due to its potential for use in nuclear weapons, and policy can have an impact (positive or negative).
Shift to clean energy at different rates: While many nations are shifting towards cleaner energy sources and increased emphasis on renewables, that trend is not unanimous globally.
Weather: Yes, even weather can derail uranium production. For example, since we first invested in some of these stocks in 2021, we’ve seen wildfires threaten to impair production at some mines in Canada.
We aim to navigate this volatility for you by rigorously selecting quality stocks, dynamically sizing positions by trimming or adding based on research, and being disciplined risk managers to ensure you aren't overexposed to one stock or even to uranium as a whole.
TLDR: While volatility is expected with this uranium thesis, we’re prepared for it and aim to use it to our advantage.
One of the greatest risk(s) we see with our uranium thesis is execution. That’s why we try to get boots on the ground whenever possible, and do in-depth work in an effort to both preserve and grow your capital.
Stay tuned for part 2 of this series which will detail John's findings from his research trip to NexGen’s Arrow Mine in Saskatoon, Canada – and what's next for our uranium thesis.
*The chart shown above is for illustrative purposes only. “Return” represents the actual return of the holding from Titan’s purchase date through 10/23/23. The weight ranges shown represent the range of holding weights in actual client accounts across our three risk profiles. Exact weight for each client will vary depending on client risk profile, investment date, and other account customizations.
As of the date of publication, NXE and DNN are holdings in Titan’s Opportunities strategy and CCJ and URNM are holdings in Titan’s Offshore strategy. All information provided in the above article is as of 10/23/23. Charts, graphs, and other illustrations are for educational and informational purposes only.
Titan Global Capital Management USA LLC (“Titan”) is an SEC registered investment adviser. Titan’s affiliate, Titan Global Technologies LLC (“TGT”), is a registered broker-dealer and member of FINRA/SIPC. The content provided by Titan in the above article reflects the opinions of only the authors who are associated persons of Titan and does not reflect the views of Titan, or any of its subsidiaries or affiliates. It is meant for educational and informational purposes only, is not intended to serve as a recommendation to buy or sell any security and is not an offer to buy or sell a security. It is not to be considered a research report, and is not intended to serve as the basis for any investment decision. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. Any third-party information provided herein does not reflect the views of Titan or any of its subsidiaries or affiliates. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not ensure a profit or protect against loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions and clients may lose money, including their original investment and principal.
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