Palisade Research - Thu, Dec 15, 2016

Palisade Global's Big Bet On Yellow Cake

picture of a drum of yellow-cake

If you have been a regular listener of Palisade Radio over the past three years, you would be aware that uranium has been a major topic of discussion. Our host and CEO, Collin Kettell, has spent considerable time interviewing guests about the commodity and its inevitable turnaround, even while it has been mired in a prolonged bear market.

There are many compelling reasons to look at uranium and uranium stocks. No other commodity offers the extraordinary upside that uranium does, which is precisely why pundits like Rick Rule, Doug Casey, and Marin Katusa can be such big fans. When you ask any of them, like clockwork, they will regale you with uranium war stories that include making a 1,225% return on International Uranium or seeing over a 10,000% return on Paladin Energy! The reason why so many of the greatest mining investors love uranium is because they can attribute the majority of their wealth to it.

However, like any speculation, timing is key. For that reason, we have cautioned listeners and readers to remain patient. Until last week, that is...

We became the first group to publicly call a bottom in the uranium stocks. Since that time, the uranium spot price is up an astounding 19%! Uranium stocks, meanwhile, have also begun to move. We believe that now is the time to act.

And we are putting our money where our mouth is. By the end of 2017, Palisade Global Investments is committing to investing $2.5M of our own capital into the uranium space. During the bear market, we invested well over $1M into the space, but now we are ready to supercharge our focus on the uranium sector. In the coming weeks, we will be highlighting some of our favourite uranium picks, as well as discussing our preferred investment strategies.

Now, let's take a look at why today is almost certainly an opportune time to buy.

historical line chart showing the inflation adjusted uranium price in USD per pound

On an inflation-adjusted basis, the 1973 to 1979 uranium bull market was the most aggressive in history. It was precipitated by the Arab Oil Crisis, which made investors realize that relying on foreign sources of energy was not such a bright idea. Between 1957 and 1973, worldwide nuclear power capacity only grew by an average of 2,400 megawatts electric (MWe) per year; however, from 1973 to 1990, this number exploded upward to an average of 16,000 MWe per year. Uranium was in high demand and prices responded accordingly - until the meltdown at Three Mile Island occurred on March 28, 1979.

The most recent uranium bull market ended with the 2008-2009 financial collapse, followed by the double whammy of the 2011 Fukushima disaster. A steady decline in uranium prices has persisted now for several consecutive years, taking the price down to levels not seen for almost 15 years. While there is currently no threat of uranium supplies running low in the next 12 months, the uranium price has strong support at its recent levels. Not surprisingly, then, contrarian investors have already started to position themselves for the impending bull.

8-year line chart showing the Bloomberg Commodity Index versus Uranium

Historically, uranium prices have tended to follow the Bloomberg Commodity Index, a liquid and diversified benchmark index for the global commodities market. Recently, there has been a strong divergence between the broader index and uranium. We believe that this divergence is temporary and a return to the mean is imminent.

6-year line chart showing the outperformance of T.U Uranium Participation versus the spot price

We released this chart last week, but have now updated it to show the recent move in uranium. We discussed how Uranium Participation Corp. (TSX:U), a company that invests in physical uranium, had been rising, despite the fact that the price of uranium was falling.

Historically, when Uranium Participation trades at a discount to spot price, it indicates bearish sentiment in the market. Conversely, when it trades at a premium, it implies an imminent increase in the price of uranium. In just the past seven days, uranium prices have moved up 19%, underscoring our point that Uranium Participation is a leading indicator for the uranium spot price. The recent strong uptick in both Uranium Participation and the price of uranium tells us that institutions, as well as savvy investors, are becoming more bullish. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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