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General Market Commentary
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General Energy
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General Market Commentary
It’s only a matter of time before this hated metal makes a comeback
In 2007, uranium was the bitcoin of its day.
Penny stocks turned into billion-dollar companies as the world rushed to invest in what seemed to be the only solution to a looming energy crisis.
Then, in 2007, the bubble burst. The uranium price has fallen every year since. Most of the companies that sprung up no longer exist. Uranium became loathed by almost all and sundry.
But I see that a new uranium investment vehicle, Yellow Cake, is listing on AIM next month with plans to raise $160m at IPO (initial public offering).
Does this mean the uranium game is back on?
The rise and fall of the nuclear metal
Uranium is deeply cyclical. We think of the 2007 high at $137 per pound as the all-time high. Yet, adjusted for inflation, the highs of the late 1970s-to-early 80s weren’t very far off that level.
There were many parallels between the two periods – the 2000s and the 1970s – not least soaring oil and commodity price inflation alongside a strong narrative that investment was needed in other energy sources if we were to maintain our current lifestyles. In the 1970s, the nuclear arms race also added significantly to the buying.
The narrative changed in the 1980s. Hydroelectric dams meant there were alternative power sources and that dampened demand. Numerous environmental and safety concerns over nuclear power plants emerged.
Shifting geopolitics meant that demand in weaponry disappeared – indeed, Russia began selling off its holdings. What was seen as a solution became loathed, and so we got an extraordinary bear market that lasted 20 years or more.
The bear market led to a considerable supply deficit. Nobody invested. The stage was set for the bubble of 2007. Although the spot price of uranium went from $10 a pound in 2003 to $137 in 2007, it was the exploration companies that made investors fortunes (well, some investors).
I know of one company that went from 5c a share to over $15. And such extraordinary gains were not uncommon. Many companies multi-bagged simply by changing their name and making sure the word “uranium” was in there.