Editor’s note: For today’s Market Minute, we’re handing over the reins to Nick Giambruno, editor at Casey Research.
Today, Nick’s got his sights set on the beaten-down commodity market, and one particular metal that’s set to soar…
In April 2003, the uranium market was tight.
After a nearly 20-year bear market, most uranium companies had gone bust, and there wasn’t immediate capacity to meet growing demand.
It was then that catastrophic flooding unexpectedly hit and closed down the McArthur River Mine – the largest and most important uranium deposit in the world. It seriously strained an already strained supply situation.
Cameco, the uranium producer that owns McArthur River, had no choice but to close the mine down for months and significantly miss its production targets.
This jolted the uranium market. And, as you can see in the chart below, it kicked off a legendary bull market that lasted years.
The price of uranium itself went up over 1,260%. And fortunes were made as uranium miners exploded orders of magnitude higher.
Even the worst-performing uranium companies delivered 20-to-1 returns. The best ones rocketed from one penny to $10 per share. That’s a 1,000-fold increase.
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I’m bringing all of this up because now, over 15 years later, we’re right back to where we were in the uranium market cycle in April 2003: the start of what looks to be a massive bull market in uranium.
Just like the last time around, a shutdown of McArthur River will be what lights the fuse. And as I’ll show you in a moment, that’s in fact what happened recently…
2003 All Over Again
Uranium can deliver the almost unbelievable returns I showed you above because of unique supply-and-demand quirks that create colossal bull and bear markets.
The key, of course, is understanding the market cycle. And what happens at McArthur River is central to that.
Located in Canada’s Athabasca Basin – home to the highest-grade uranium in the world – McArthur River makes up about 12% of the world’s annual uranium production.
Naturally, McArthur River is pivotal to the uranium market…
And in July, we got the same catalyst that kicked off the 2003 uranium bull market.
Cameco announced that it was shutting down production at McArthur River indefinitely, after suspending operations in late 2017.
There’s nothing wrong with the mine – or the company. It’s simply better for Cameco to leave the uranium in the ground and wait for higher prices.
Cameco also announced it permanently laid off 550 workers. A further 150 employees at its corporate headquarters were given the pink slip. These are not temporary leaves of absence, but permanent layoffs.
McArthur River is not going to be producing anytime soon, likely not for years. It’s not easy or fast to restart a uranium mine once it has been shut down.
Not only that, the McArthur River mine is located in Canada – a stable, mining-friendly jurisdiction.
By contrast, most uranium is mined in unstable places like Kazakhstan. You can see this in the chart below.
Eliminating that much supply capacity from a stable area makes this catalyst even more profound.
An Urgent Catalyst
On the surface, this sounds awful. But let me put it into perspective.
First, Cameco’s share price didn’t crash on this news. In fact, it actually went up because these actions will help resolve the supply imbalance in the market.
I have no doubt Cameco will survive and deliver huge profits to investors in the coming uranium bull market. Regardless, Cameco still has contracts to deliver uranium that it has to honor.
But without McArthur River, it won’t be producing enough uranium itself to meet those commitments. Rather, it will look to buy uranium on the spot market to the tune of 10 million pounds per year, which is roughly 6% of global production.
In short, Cameco is removing a huge portion of global supply, and at the same time adding to global demand. This is wonderful news for uranium investors.
With supply shrinking and demand rising, uranium prices will inevitably go up.
When the turnaround comes, I expect it to be at least as explosive as the 2003 uranium bull market.
Think of it like a giant coiled spring that gets more and more compressed as supply is destroyed… until a catalyst unleashes its potential to rocket uranium prices higher.
The indefinite shutdown of McArthur River is that catalyst, just like it was last time around.
That’s what makes the situation in the uranium market truly urgent. And the best way to profit is by positioning yourself in select uranium companies.
Regards,
Nick Giambruno
Chief Analyst, Crisis Investing
P.S. On October 17, the Casey Research team will fly out to Bermuda for the first annual Legacy Investment Summit.
There we’ll dive deep into trends just like this one – those that stand to be the biggest moneymakers these next few years, but are outside every mainstream investor’s radar.
For example, my presentation at the summit will show why every investor should get positioned in the cannabis market now, before Trump makes it legal nationwide.
Tickets are going fast, but there are still a few seats available. Click here for more details, including how your attendance could save you $1,000.