Hodge, who runs the Outsider Club, explains why he thinks a uranium rally isn’t far off. He also touches on gold, cryptocurrencies and cannabis stocks.
Uranium has spent years in the doldrums, but Nick Hodge, founder and president of the Outsider Club, thinks it won’t be long before there’s a turnaround.
“I don’t think any uranium company in the world is making money [at $20 to $21 a pound], and so by the laws of supply and demand, the price has to rise,” he said at the recent New Orleans Investment Conference. “I think there’s a very real opportunity for investors to take positions in quality companies that have high-grade and shallow uranium assets that are really going to reap rewards in the next cycle.”
When asked what he’s doing to take advantage of the situation, Hodge said he’s a large shareholder in Fission Uranium (TSX:FCU). “They own an asset in Athabasca Basin in Saskatchewan that has 100 million known pounds now, there’s likely much more than that,” he said.
Hodge added that the company has done a lot of drilling since releasing a preliminary economic assessment (PEA) for the project, and there could be “a lot of pounds that haven’t been formally added to the resource in the form of a 43-101 compliant document. They look to do that next year, and I think you’ll see this thing start to creep to 150 or 200 million pounds.”
INN: At the Outsider Club you cover a wide variety of commodities and markets. What’s the most compelling opportunity you’ve seen this year in metals? What’s your favorite right now?
NH: I think there’s been a multi-year opportunity in uranium. It’s been debased for so long, but the price is incredibly cheap right now, trading somewhere between $20 and $21 a pound. I don’t think any uranium company in the world is making money with that price, and so by the laws of supply and demand, the price has to rise. The price has to rise for uranium companies to [have the incentive] to get uranium out of the ground. And so I think there’s a very real opportunity for investors to take positions in quality companies that have high-grade and shallow uranium assets that are really going to reap rewards in the next cycle, when the uranium price does start to rise.
INN: When do you think that will happen?
NH: That’s a very loaded question, right? I thought it would have happened already to be honest, so I was probably a bit premature in my call for uranium. But talking to people here — people like Scott Melbye from UEC (NYSEMKT:UEC), who’s an advisor to Kazatomprom — they’re talking about cutting 10 percent of global production. Kazakhstan is talking about taking Kazatomprom public, and of course they would want the commodity price higher — a higher uranium commodity price environment for that initial public offering.
I think the utilities also have to come back into the cycle in 2019 and 2020, and typically equities will start to move ahead of that. Let’s say next year … I talked to some people who have talked to the Kazakhs lately, and I believe that uranium prices have to begin to rise soon.
INN: What you have been doing to take advantage of that opportunity?
NH: If I can talk about a specific company, there’s a company called Fission Uranium that I’m a large shareholder in, and it’s been a recommendation of mine for a long time. They own an asset in Athabasca Basin in Saskatchewan that has 100 million known pounds now, there’s likely much more than that. They’ve done a PEA that says they can get that uranium out of the ground at $14 a pound, and they’ve done a lot of drilling since that PEA came out, so I think there’s a lot of pounds that haven’t been formally added to the resource in the form of a 43-101 compliant document. They look to do that next year, and I think you’ll see this thing start to creep to 150 or 200 million pounds. Its incredibly pure, it’s incredibly shallow and I believe it will be a mine one day.
INN: Shifting gears a little bit, I watched one of your presentations yesterday and you had a lot of great advice for investors. What is the biggest mistake you usually see people make when investing in resources?
NH: I think people get attracted to a story or a dream. Everyone wants to find a gold mine — a gold mine is very exciting, and I think people get caught up in stories as opposed to numbers. I think you really have to drill down in the share structure and make sure that the company was put together in a way that allows the price to rise for all stakeholders, not just those that were in on the first couple rounds of financing. So … make sure that management interests are aligned with your interests, and that they have skin in the game and that they paid for those shares. I think that’s the best advice I can give, and not doing that I think is a mistake.
INN: There are a lot people here who are interested in gold, and it almost seems this year that cryptocurrencies have been the biggest story in gold. Do you look at cryptocurrencies, do you see them competing with gold?
NH: Cryptocurrencies are popular in 2017. I actually recommended bitcoin in 2013, so I was bit ahead of the curve on that one. We have since sold. At this point there’s lot of dogs in that fight — in fact, there’s a dogecoin, right. There’s ether, there’s bitcoin, there’s thousands of cryptocurrencies that are popping up, and so in that respect I don’t know how unique it is. Quite honestly I believe it’s too early to tell. I think that the real benefit of the cryptocurrencies is the blockchain ledger that allows transparency of transactions and accountability in real time. But as far as picking a cryptocurrency, I don’t know, I want to hold things in my hand.
INN: You’ve mentioned before that young people really have a huge interest in cryptocurrencies. Do you think in the gold market and in mining — do people need to be doing more to get young people into it?
NH: I think absolutely. And I would say that I’ve seen more young people at the New Orleans Investment Conference this year than I have ever seen, so that’s a good thing. I’m not sure what the gold industry can do because it’s sort of a generational gap. I mean … gold has been around for thousands of years, and cryptocurrencies have only been around for a decade. As my partner Geraldo Del Real said in a presentation on the first day of this conference … investors in cryptocurrencies haven’t had their faith tested yet. And by that he means, let’s see how many investors are going to continue to hold their cryptocurrencies if bitcoin slips from $5,000 to $4,000. I think it’s going to be interesting when these new investors have their mettle tested.
I’d also add that the young people I’ve talked to in my office are putting money in cryptocurrencies before they’re establishing their retirement accounts, and I would advise that that’s a mistake. I think you should set up some safe investments before you start speculating on cryptocurrencies. But I think once gold has its cycle, once we get to $1,400 and it becomes more in the headlines, I think you’ll see young people start to be more attracted to the yellow metal.
INN: Do you have a gold price prediction? Where do you see gold going as we go into next year?
NH: I’m not going to predict the price, but I think that the gold price is going to rise because reserves have to be replaced. It’s similar to uranium. The cost to get it out of the ground has got to be matched by the public price of the commodity. I think we’ll get to $1,400 gold in the next two years, and I think if we hold that level then it could be a very real slingshot effect from there.
INN: Last question. Another thing that young people like is cannabis stocks. What’s your advice for resource investors who want to switch from resource to cannabis, or diversify into cannabis?
NH: Same thing as in mining stocks, you’ve got to do your research, know the people involved. It’s such a hot sector right now that there’s a lot of shysters and shenanigans, so it’s easy to put cannabis or marijuana in the name of your company and go out and then run a promotion. I think you need to make sure that these companies are doing what they say, that they actually have their license, that they’re an LP, a licensed producer. And I think you should make some smart bets early.
Less than a quarter of the US states have legalized marijuana in a recreational capacity, and I think that you’ll see a cascade effect over the next decade as more and more states get jealous of the tax revenue being generated in Colorado and Washington. It’s very early days in that sector, and I think if you pick a few quality companies that are already entrenched in the sector you’ll do quite well.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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