Uranium/Nuclear is Energy's Future. Markets, Gold
Struthers Report V29 # 6.10
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So far in 2023, is the most difficult market going back to 2008. Nothing is going anywhere but gyrating up and down in tight trading ranges. A handful of tech stocks has helped the main equity indexes, but even so the S&P 500 has been bouncing mostly around between 3,900 and 4,150 this year.
Oil has been bouncing between roughly $70 and $80. Counter to what they said, the government released another 2.4 million barrels from the SPR last week for the 7th straight weekly drain. Do as I do not as I say. Most promising was gold that looked like it was in a new higher trading range, but the gold price broke down today. I believe gold is telling us that the Fed pivot is much farther off than the market narrative suggests.
Annual inflation unexpectedly rose to 4.4% in April, Statistics Canada said. Analysts polled by Reuters had expected the annual rate to edge down to 4.1% from 4.3% in March. Month-over-month, consumer prices gained 0.7% from March, higher than the forecast 0.4% increase. Derek Holt, VP at Scotiabank. "I don't see any slowing down in terms of the underlying price pressures." Canada is not a lot different than the US, perhaps this is a precursor what we will see in the US, especially once lower energy prices work through the annual numbers.
There is a lot of discussion around green energy and going electric, but not so much on the reality of getting there. Wind and solar are only good for about 20% to 25% of the grid because they are intermittent. As I pointed out in my April 28th Climate Change report, battery storage is not the answer either. In a real life example where there was little wind for several days in UK's offshore it would have required 1600 Gwh of storage to make up for that loss. That is 1,000 times the capacity of the world's largest grid storage battery at Moss Landings, California.
The world has already tapped most of the hydro power, so there is only one solution to replace fossil fuel for it's baseline power load and that is nuclear. Most promising is the upcoming module (smaller) nuclear power plants and I plan a complete report on this in the near future.
This chart above includes carbon emissions from the mining of materials to build components and emissions from the manufacturing process as well. This is than calculated out over the life cycle of those energy producing plants. Nuclear is the best option when it comes to emissions other than a small advantage with onshore wind. For today, I will focus on uranium, hydrogen and my favourite uranium/nuclear stock Cameco.
This next chart is from Sprott's Uranium Report and you can see that Uranium has been the best performer in the commodity sector and a reason I have kept Cameco as a long term hold.
Cameco - - - TSX:CCO - - - - NY:CCJ - - - - Recent Price - C$36.50
Entry Price - $3.25 (reflects 3 for 1 split than 2 for 1) - - - - Opinion – hold
Cameco is the largest publicly listed uranium producer by market capitalization, has had tremendous contracting success recently. In 2022, there were approximately 114 million pounds of total long-term contracts per UxC, and Cameco alone accounted for 80 million pounds. The chart below, also from Sprott shows the longer term bull cycles in uranium. We did extremely well with Cameco, buying it in 2000 and watching the stock split twice in the bull run up to 2007. This gave us a buy price of $3.25 and a 3.7% dividend yield. It has been on my Millennium index for 22 years with my next longest pick there at 14 years.
It is currently about 1100% above our buy price and that does not include dividends. Is Cameco a buy now?
This next bull run in uranium has much further to go, especially as nuclear energy is coming back in favour with the green push. Microsoft founder Bill Gates is behind developing smaller, cheaper reactors that could supplement the power grid in communities across the U.S.
Tennessee Valley Authority President and CEO Jeff Lyash puts it simply: You can’t significantly reduce carbon emissions without nuclear power.
“At this point in time, I don’t see a path that gets us there without preserving the existing fleet and building new nuclear,” Lyash said. “And that’s after having maximized the amount of solar we can build in the system.”
A recent poll released by the Angus Reid Institute found that 57 per cent of Canadians who were surveyed would like to see further expansion of nuclear energy in the country. That’s an increase from 51 per cent support just a year and a half ago.
While 500 kilometers was an acceptable distance between one’s home and a nuclear plant for 58 per cent of respondents, 42 per cent said they would not be comfortable with that proximity, according to the poll. This is a issue that small modular nuclear plants would fix.
Canada has four nuclear power plants – three in Ontario and one in New Brunswick. Bruce Power in Ontario is the biggest supplying about 30% of Ontario's electrical needs. Cameco did own a 31.6% interest and sold that in 2014 for $450 million. In March, US President Biden and Prime Minister Trudeau affirmed their intent to promote enhanced collaboration on nuclear energy and technology between their two countries.
May 11, 2023, the Italian parliament voted in favour to bring back nuclear.
The representative sample of 1,005 French people questioned online in January 2023 are 70% in favor of this low-carbon energy available in their country, while only 34% had an above all positive view of it when a previous edition of the study conducted at the end of 2019. I could go on, interest in nuclear is climbing around the world. It is clear to see in this chart from Cameco's presentation.
These nuclear plants take many years to construct and cost $10s of billions each. New smaller modular plants will soon add to this mix and Cameco will benefit with that as well.
In April, Cameco announced it had extended its long-term exclusive nuclear fuel supply arrangement with Bruce Power (Canada’s only private-sector nuclear generator) for an additional 10 years to 2040. The agreement is estimated to represent an additional $2.8 billion in business. Cameco also finalized its agreement with Energoatam, Ukraine's state-owned nuclear energy utility,10 to provide all of Ukraine’s nuclear fuel needs from 2024 to 2036, estimated at 40-67 million pounds of U3O8 equivalent. Finally, Cameco signed a 10-year supply contract with Westinghouse Electric Company to support Bulgaria’s UF6 needs. Nuclear power accounts for more than 30% of Bulgaria’s electricity supply, and with this agreement, Cameco will deliver an estimated 2.2 million KgU as UF6 (or 5.7 million pounds U3O8 equivalent).
Cameco is more a net buyer in spot markets than a seller. Pretty much all of their production is for long term contracts. This still gives them exposure to higher prices and at the same time protection from lower prices. They currently have have 215 m pounds in long term contracts going out over a decade. This graphic from their presentation shows their key producing assets with planned production for contracts.
Cameco sold 25.6 m pounds uranium in 2022 at an annual average price of Cdn $57.85. In Q1 2023 they had very strong profits of $119 million, more so than all of 2022 combined.
Cameco will also benefit from current and future geopolitical events they point out.
The global nuclear industry is reliant on Russian supplies for approximately 14% of uranium concentrates, 27% of conversion and 39% of enrichment, the geopolitical realignment is also highlighting the security of supply risk associated with the growing primary supply gap and shrinking secondary supplies, while increasing the focus on origin of supply.
Nearly 80% of primary production is in the hands of state-owned enterprises, over 70% comes from countries that consume little-to-no uranium and nearly 90% of consumption occurs in countries that
have little-to-no primary production.
In April, five of the G7 Nations, including Canada, US, France, Japan, and the United Kingdom announced an alliance to develop shared supply chains for nuclear power. According to a joint statement, they have “identified potential areas of collaboration on nuclear fuels to support the stable supply of fuels for the operating reactor fleets of today, enable the development and deployment of fuels for the advanced reactors of tomorrow, and achieve reduced dependence on Russian supply chains.”
The stock shows it had a great run. I believe there is great long term value, but near and medium term the stock might struggle. I am expecting another down leg in equity markets and looking at that time to add to positions or initiate one if you currently don't own the stock. That said, a break out above the $40 resistance area could change my mind.
Hydrogen as green energy is starting to take hold in Canada, in particular NFLD. On May 17th there is news that a subsidiary of South Korean company SK Group has signed a deal with World Energy GH2 to buy a minority stake in a Canadian green hydrogen project for US$50 million.
Under the deal, SK ecoplant will acquire a 20 per cent stake in the first stage of the Nujio’qonik project in Newfoundland and Labrador. This is very good news for us, as this project is in the same location as Atlas Salt, but more important the spinout from Atlas Salt called Triple Point.
Atlas Salt - - - - TSXV:SALT - - - - Recent Price - $1.21
Entry Price - $0.80 - - - - - - Opinion – buy on weakness, near $1.00
SALT's stock is beat up like pretty much like everything else but I expect we are going to realize some pretty strong value on an eventual buy out. And don't forget we will get additional value from Triple Point. That stock should trade later this year and to recall we got approximately 0.279 of a Triple Point share for each Atlas Salt share.
Triple Point has to do some more exploration work but likely has salt domes in the same area as the Nujio’qonik project. These will be perfect to store the hydrogen from that project.
The Mi’kmaw name for Bay St. George is Nujio’qonik. Pronounced ‘new-geo-ho-neek,’ it means ‘where the sand blows.’
Project Nujio’qonik will be Canada’s first commercial green hydrogen/ammonia producer created from 3+ GW of renewable electricity through wind projects in one of the world’s best wind resource regions.
The plan is to develop 3+ GW of renewable electricity through wind projects on the west coast of the island portion of Newfoundland and Labrador. The sites will be developed concurrently with a staggered target delivery schedule, with increased hydrogen production over time. A 3+ GW wind farm will deliver approximately 250,000 tons/year of hydrogen using 1.5 GW electrolysers.
You can watch a 3 minute youtube video about the project here.
Zonte Metals - - - - TSXV:ZON - - - - Recent Price - $0.09
Entry Price - $0.15 - - - - - Opinion – Buy, average down to $0.12
This news just came out this morning so I added it to this issue before sending out. I don't think investors, other than perhaps some with a geology background and probably few of them get it. That is because IOCG systems are not well understood and/or popular, although they can be huge in size. I am planning another video interview with Terry Christopher to help explain the exploration approach.
Originally, Zonte was focused on the magnetic anomalies, but with much research and study, a lot of IOCG discoveries are made in the gravity anomalies along side the magnetic highs. Since Zonte has been doing gravity work, their drill targets are looking a whole lot better, especially with all the copper in soils and rocks associated with these new targets.
Zonte announced another beauty today with two gravity anomalies around the edges of the magnetic highs at K9. At this target they found the highest grade of copper in soils over the entire project thus far. This is more than a pretty picture. I am starting to have a lot of difficulty on what is my favourite drill target now.
Somebody posted a picture of a rock sample on the chat forum. It is not just another pretty picture either. It shows alteration which is an indication of a mineralization event. But what is more it shows two styles of alteration in this one sample, quite rare and the only one found on the project so far.
Markets suck right now and the only thing I know for sure is this does not last forever. I am suggesting to average down positions to bring my the buy price down to $0.12. It is not easy to buy the stock at these low prices as there is just little volume, but there is time before the drill program starts. You can try and be patient with bids at $0.08 and $0.09 or there has been around 50k shares on offer at $0.10. I don't think the stock will stay down at these levels when drilling begins. This will be one of the most widely watched drill programs in the industry. Zonte has gained a large following by those focusing on copper for the new electrification in the green initiative. That is because they know there is going to be a copper shortage and those in the industry are going to jump all over any new discoveries. I am convinced Zonte will make a discovery and we can get in now and/or add to positions before the arm waving starts and while it is cheap.
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