Well, so much for all those inflation/ rates fears. The market came roaring back yesterday and I cannot quite fathom out why. But I suppose that’s rather beside the point as the markets are in what I call ‘see through’ mode.

Investors like to ‘see through’ short-term worries to focus on the long term (which is defined, curiously as anything over a year or so but definitely under three years). So, we can see through any number of terrible things to glimpse the Olympian heights to which earnings could soar.

Back in the real world I suspect the main game in town for the rest of us reformed cynics is to either a) dodge the inevitable crash and/or b) to think intelligently how we diversify our portfolios.

With regards to this latter objective, the holy grail is to find something, a trend or a theme that isn’t necessarily identical to all the other tech/growth/disruption/central bank loose money ideas out there. I think more than a few are probably lurking around the world of commodities although there is an obvious reflation / loose money trade going on there.

My view – already expressed in an FT column – is that the nuclear rebirth/renaissance is one of those stories, with a focus on uranium prices. Overall, I think my preferred way in is via AIM-listed Yellow Cake where I hold some shares – and continue to buy more on a monthly basis. I don’t seem to be the only interested party. I hear that YCA has “completed a placing for US$140m new ordinary shares (for the purchase of additional physical uranium) at 223p/share” according to Ocean Wall, an alternatives investment firm. “The initial fundraise announcement was intended to be at least US$110m, and due to strong investor demand the raise was increased by US$30m.The funds will be used to purchase 3.5 million lbs of uranium for $28.95/lb under the company’s existing contract with Kazatomprom (which gives YCA the option to purchase up to US$100m of uranium per annum).”

Pretty much everything I talked about in my FT column from last year still stands but the YCA fundraising did provide us with an updated note from analysts at Canaccord Genuity, which nicely sums up the bull case.

We forecast a 27% increase in spot to $37/lb by year-end 2021 and have retained our long-term outlook of $50/lb. In our view, the likelihood of a return to long-term contracting improved drastically over 2020, with clarity emerging on a number of trade policy issues that previously kept utilities away from contracting, including amendments to the Russian Suspension Agreement, results of the Nuclear Fuel Working Group, and the outcome of US election. With the COVID-19 vaccine rollout now underway, we believe utilities are starting to focus more on procurement and uncovered demand requirements. Uncovered demand is estimated at 1.5 billion lbs through 2035, according to UxC. Despite this, we have yet to see a major contracting cycle since Fukushima. Other key factors that may drive prices in 2021 include: further COVID-19 demand/ supply impacts, China’s 14th Five Year Plan, nuclear energy initiatives under President Biden, and reactor restarts (UAE, China, etc.) and shutdowns (Germany, Japan, US, etc.). Given the significant amount of uranium being purchased by Yellow Cake, this may have the effect of tightening the spot market slightly; however, we believe the major driver will be the return of utilities to the market to secure supply”.

This note also coincided with a report from the excellent 13D Global Strategy outfit which suggested that we could be on the cusp of a new supercycle bull market. As always with their notes, this elegantly laid out the bull case. On the supply side, we’re still in a very tight situation since Fukushima – The big Cigar Lake mine for instance owned by Cameco closed again in December and Kazatomprom has announced that it maintains a 20% supply reduction through 2022. All in all the market probably faces a 100 million pound per year production shortfall by 2035 even while secondary supplies dwindle away. On the demand side, global demand now exceeds pre-Fukushima levels with another 53 new reactors under construction worldwide. So, doing the sums, it works out something like this:  Annual demand from the worlds 440 nuclear reactors is about 175 to 180 million pounds per year but global production is running at around 150 million pounds according to uranium Insider and “is even lower now due to Covid curtailments” according to 13D.

The most recent catalyst for bullish sentiment has been the news that the new Biden administration looks to be much more nuke-friendly than we first feared – many pro-nuclear lobbyists are quietly celebrating. That means that if the 12 scheduled reactor closures were to be postponed to 2030 or later we might reasonably expect that to add 26 mlbs of annual uranium demand based on sums from BoA. And here’s the key punch line. This supply and demand crunch comes at a crucial tipping point where most of the major buyers of uranium powder are moving away from long term supply contracts to buying more from the spot market. According to one estimate by 2025 over a third of demand will not be covered by long-term contracts increasing to 55% by 2027.

Over the last few weeks, I’ve grown increasingly bullish on uranium and thus Yellow Cake and I think a target of 300p a share over the next two years isn’t outrageous. I’ve started increasing my regular purchases.