VIDEO - Nick Hodge: I’m as Bullish as Ever on Uranium

Despite supply cuts from major producers, uranium prices remain low, and many investors are wondering when the promised turnaround in the sector will arrive.

Speaking at last week’s International Mining Investment Conference (IMIC) in Vancouver, Nick Hodge, founder and president of the Outsider Club, said he is “as bullish as ever” on uranium.

“For me … it’s ‘when,’ it’s not ‘if,’ and so I’m patiently waiting,” he said. “I’m happy to own what I view as quality assets — they’re in the ground and they’re not going anywhere.”

Hodge, who among other things led a uranium showcase at the conference, admitted that it has taken “longer than anyone thought” for the space to improve, but said the market appears close to equilibrium.

He believes that moving forward it will be important to watch the demand side, particularly utilities. “They follow each other, so once one starts [contracting] it … kicks off the domino effect,” he explained.

Watch the interview above for more insight from Hodge on uranium, plus another sector he’s currently interested in. The transcript for this video is available below.

INN: We’re here at IMIC in Vancouver, and later today you’ll be leading a uranium showcase. How are you feeling overall about the uranium space right now?

NH: I’m as bullish as ever. I think it’s been four or five months since I gave my last talk on uranium, that was back in January. The price has remained quasi-flat since then, it’s maybe up a dollar or two — the spot price of uranium I’m talking about — to nearly $22 a pound. But look, for me, I think I’ve told you this before, it’s “when” it’s not “if,” and so I’m patiently waiting. I’m happy to own what I view as quality assets — they’re in the ground and they’re not going anywhere. Ten to 20 percent of the world’s electricity is not going away any time soon. It needs to be produced. It’s only a matter of time. Has it taken longer than I thought? Of course, longer than anyone thought I think. But do I think it’s going to be as bullish as ever when it finally turns?  I continue to think that, yes.

INN: We spoke last in January, and since then we’ve seen the potential for more supply to come off the market. Do you anticipate further uranium supply cuts, and when could they happen?

NH: I think I’m going to say no. I think that the market is getting close to back to equilibrium at this point. You mentioned we’ve seen some big cuts from the Kazakhs, from Cameco (TSX:CCO,NYSE:CCJ). I think no — I think that now we need to start looking at the demand side. We had the eighth nuclear reactor in Japan restart just this week. They still have many more to come back online, something like 12 to 15 coming back online this year.

And so, I think we need to start looking at those things. Those Japanese reactors that have been sitting on the sidelines are one of the reasons there’s been excess supply — because they weren’t chewing through what they typically would have burned up pre-Fukushima, [they’ve] just been sitting on the sidelines. So some of that Japanese uranium has come into the market and exacerbated the oversupply. But now that they’re coming back online; no, I think it’s time to start looking at the demand side, and the especially the utilities, which are now starting to enter the market again for the first time in a long time.

INN: Speaking of the supply side, we have Kazatomprom planning an IPO later this year. When do you think we can expect that, and what could we look for?

NH: I think the most important thing to look at on the Kazatomprom IPO is the fact that they have to be a real company now. They’ve established a marketing arm that has to take delivery of the product and market the product, as opposed to Kazatomprom itself just selling it into the market. They’re acting like a western company. They’re being more guarded. They want to receive the highest price possible for the product and not just be the dominant player. And so, I think you’ll see them be conservative in putting uranium on the market and holding it back until they can get the prices they want or need [in order] to help establish a smooth international market for the commodity, just like … Saudi Arabia has done for oil for the past half a century.

INN: We’ve spoken a little bit about supply, demand, this IPO. Any other uranium market catalysts that investors should be watching for?

NH: I think the thing is the utilities. They come in cycles and so — a little bit of uranium lasts a long time in a nuclear reactor, so they only have to buy every couple of years. That’s the first point on utilities. The second point is that uranium is a tiny, tiny piece of the cost of owning and building and maintaining a nuclear reactor. The capital cost is in building the reactor, not in running it. And so, I might have told you before, I know I say this a lot — it doesn’t matter to the utilities if uranium is $20 a pound or $200 a pound. It’s still a minuscule cost of their overall operating budget and costs.

We’ve seen some utilities come in so far in 2018, and people say they follow each other, so once one starts [contracting] it … kicks off the domino effect. That’s what I’m looking toward now, these utilities coming back in, starting to contract — and they’re going to have to contract at fair prices because they’re not going to sign uranium contracts at $20 or $30 a pound … because nobody makes money mining uranium at $20 or $30 a pound. And so hopefully that’s the catalyst that will spark some sort of appreciation in the uranium sector. I’m not a technician, but I’ve been reading some technicians lately, and the consensus seems to be that uranium, the spot price chart of uranium, is due for a breakout. It’s banging up against resistance at $22 a pound and we could see some good things happen.

INN: We’ve talked previously about the idea of if it’s too late to get into the uranium; you said, “no.” I feel like a better question is, “is it too early?” How should investors be timing this market?

NH: I feel like I’m always too early. I mean, I was writing about wireless charging for Apple (NASDAQ:AAPL) iPhones three years ago, and that technology is still not publicly available, although it exists. I think it’s the newsletter writer’s curse … we read news for six or seven hours a day, and then we see so much that we think it’s going to happen sooner than it is. Maybe we wish that it [would happen] sooner that it is.

But is it too early? No, as I said in the beginning of the talk, I think that if you own quality assets in the ground — I’m not talking about exploration assets, I’m talking about defined uranium assets in the ground — they’re not going anywhere. And so your only cost is the opportunity cost of putting that money somewhere else. But for me I’m content owning those assets and adding at these low prices. And so, if it takes longer, it takes longer, but I’d rather be too early than too late.

INN: For the last question we’ll take you away from uranium. What else are you looking at?

NH: I think cannabis is very interesting. It’s tough to put your finger on the valuation metrics because not a lot of the companies are making money, and legalization is yet to come in many first-world countries. But here in Canada I think you guys are working on it. There’s no definitive date. They say they’re going to vote by the first or second week of June, and they say they’re on track for that timeline.

I think that’s a major catalyst irrespective of how much pot Canadians are going to consume, or how much they going to spend on it. I think the legislative catalyst is enough to send those stocks much higher, and you’re starting to see them get excited. I’ve just been looking at the cannabis ETF over the past couple of days, and it’s starting to appreciate again after it … went up headed into the US elections at the end of last year. And then it sort of fell off in January, February, but it’s starting to get exciting again in the cannabis space. So that’s one thing I’m looking at for sure.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.