So if you’ve been in the mining rounds in 2022, you’ve probably heard enough about uranium:
- Nuclear provides the most reliable energy source bar none
- Supply and demand gap is widening
- Sprott vehicle is buying up the spot market
- Nuclear material downstream (UF6 and Enrichment) at highs not seen in forever
- Japan re-starting their plants
- China doubling capacity
- US bi-partisan proposals for capacity construction
- Extensions of power plants all around
Etc., etc…
Being in the uranium retail crowd since 2014 gives me an inside view into what people are thinking and how that’s affecting where people invest. And here’s what I’ve heard time and time again:
“I’m buying uranium developers to capture the gain as they come into production.” And then people go on to reference Paladin Energy, that had a 1000x (not a typo) run and peaked in 2007. 
And here’s where I see a massive eco chamber. Everyone wants the next producer. Which is a great strategy, and how I’ve made most of my money in this industry, but when you look at the hard numbers, there are many question marks.
The first one is, what’s the current market cap versus the NPV of these projects?
I’m looking at a lot of developers and most of them have had lots of exposure, and their price reflects that. They are immensely less risky than exploration companies, but that has come at a premium reflected in the price. Some companies boast a market cap that’s even more than project NPV, which is great for whoever bought it 36 months ago, but it makes it difficult to affirm their status as “cheap”.
Secondly, why are we using 8% and 5% discount rates for projects when you can get a government bond for close to 4%?
Mining projects are seriously risky. By and large, anything that can go wrong will go wrong with a mining project and higher taxes, political stress, technical constraints and lack of experienced staff are just a few of the factors affecting mining developers right now.
Thirdly, is the Capex of the project on based on the last years’ assumptions, when input costs were 10-30% percent lower?
You know it and I know it, the price of everything has gone up double digits. In mining specifically, the prices of chemicals for ore processing, infra-structure raw materials such as equipment, metals and parts have seen not only a price increase but in some instances, they are so hard to find you need to extend your project timeline by several months, which inevitably costs more.
Fourthly, Paladin had a tiny market cap when it was a 1 cent stock. It would be considered a nano-cap stock at the time.
You know what they say “buy low, sell high”. In order to make massive gains, it helps to buy something whose value is a fraction of its current market cap. I like to look at market caps that are ⅓ or better than NPV. Please note, that most times, companies will have projects which don’t yet have an economical assessment made, and therefore you need to make room for those, if you believe they have any value whatsoever.
What I’m looking at instead:
I like the producers. I think they’re going to catch a bid from larger funds that cannot own the developers, which in the equity world would still be considered too small and illiquid for many.
But what I’m really interested is in nano-caps, companies of around 10m-50m or less that have a faster path to proving up resources because they’re brownfield projects and can be great takeout candidates for producers or high-priced developers.
As retail investors, we’ve been blessed with the opportunity to play in the kiddie pool of investments, where funds cannot come in and the gains can be truly lifechanging. In order to sell high, you have to buy low. Run the numbers on your own investments and see if they stack up.
Happy investing!
Fabi