The Rossing joint venture near Arandis, Namibia, is one of the oldest and largest uranium mines in the world and one of the uranium supply sources that has been affected by COVID-19.
Uranium equities have had a banner start to the year as positive business fundamentals seemed to collide with Reddit-fueled market chaos.
Shares in Cameco Corp. jumped above $14 for the second time in 2021 during the week of Feb. 1, increasing year over year from a share price of about $8.30. The company operates the largest uranium-producing mine in the world, Cigar Lake in Saskatchewan, and has suffered significant losses due to production stuttering related to the effects of the coronavirus pandemic. The Global X Funds - Global X Uranium ETF, an exchange-traded fund that provides investors with broader exposure to uranium mining, booked similar gains.
The pandemic wrought a recovery in uranium stocks not seen since the 2011 Fukushima Daiichi nuclear disaster in Japan by shutting down major supply sources, including Cigar Lake and other mines in Kazakhstan and Namibia. But unlike the prior rallies in uranium stocks, the recent market boost was apparently untethered to the uranium price or government activities.
Prices have fallen slightly from the highs recorded after the closure announcements. S&P Global Platts assessed the current-month spot price of uranium at $29.46 per pound as of Feb. 4 at 1 p.m. ET, the lowest price since Dec. 4 when it was $29.50/lb.
The relative quiet in the news led TD Securities analyst Greg Barnes to declare a wave of retail investors seeking a "uranium short squeeze" as a "possible driver behind the moves in the equity markets."
Barnes wrote in a Feb. 3 note that a subreddit named r/UraniumSqueeze was created Feb. 1 on the Reddit website amid a retail-driven rally in silver markets and had already accrued about 500 members. Users on the social media site called on other day-by-day investors to invest in the radioactive metal. As of Feb. 5, the group had 686 members.
The recent shock in the GameStop Corp. stock price may have translated into other money-movers investing in uranium, Barnes added. "We also suspect that a short covering rally in uranium equities could have been catalyzed by the short-squeeze in other assets (e.g. GameStop), as institutions covered positions to fund losses elsewhere," Barnes said.
Uranium investors interviewed during the week of Feb. 1 said they were conflicted on how much of the rally was due to retail interest or institutional investment. Some of the reaction could have been in response to a Feb. 1 note from Bank of America Securities exploring the possibility of the U.S. delaying the closure of its aging nuclear fleet, they said.
According to the Bank of America note, if the U.S. Nuclear Regulatory Commission delayed the expiration dates of 12 U.S. plants expected to close in 2021 to 2030, it could add 26 million pounds to global uranium demand forecasts. "While just a 2% increase [in demand], it helps, plus such a shift could lead to increased pressure on utilities to move forward new contracting," the note said.
Other than the analyst note, investors had not been confronted with new information other than a relatively minor announcement from Cameco that it was investing further in laser enrichment technologies.
Arthur Hyde, partner at Segra Capital Management LLC, said an analysis of trading volumes specifically in Cameco indicated that "while retail may have played a part" in a bump in share price, there was "also real capital moving into the market and taking a position in a market that's roughly thin and illiquid."
Hyde said he did not see direct evidence that uranium was in vogue among the social media users that propelled GameStop and other equities to stratospheric heights. "I don't think it's really reached that community."
However, uranium is a small market with few participants and smaller companies with high short interest, Hyde said. If something like GameStop came to the uranium space, there could be "some serious fireworks."
"While I don't think it's reached that storyline yet, and I'm not sure it will ... to the extent it could become of interest to that kind of retail investor, I just think the ability for it to move is there," Hyde said.
The GameStop craze showed individuals in the uranium space that anyone who can crowdsource support can make a massive splash in thinner areas of equities, Independent Speculator's principal analyst and editor, Lobo Tiggre, told Market Intelligence.
"If there's hype moving crowds into different things … Maybe that's happening in uranium. We don't have any data. All we know is, prices are moving now, as we speak," Tiggre said. "I don't know where it came from. Maybe it had nothing to do with Reddit at all."
S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.