Uranium equities have had a banner start to the year and on Friday, shares in Cameco - operator of the largest uranium-producing mine in the world, Cigar Lake in Saskatchewan - jumped above $14 for the second time in 2021, increasing year over year from a share price of about $8.30. The Global X Funds - Global X Uranium ETF, an exchange-traded fund that provides investors with broader exposure to uranium mining, booked similar gains.
While the pandemic has sparked a jump in uranium stocks not seen since the 2011 Fukushima Daiichi nuclear disaster in Japan by shutting down major supply sources, including Cigar Lake and other mines in Kazakhstan and Namibia, unlike the prior rallies in uranium stocks the recent market move was not linked to the uranium price or government activities. In fact, price fell slightly from the highs recorded after the closure announcements. S&P Global Platts assessed the current-month spot price of uranium at $29.46 per pound as of Feb. 4 at 1 p.m. ET, the lowest price since Dec. 4 when it was $29.50/lb.
As S&P Market Intelligence reports, the relative quiet in the news led TD Securities analyst Greg Barnes to declare a wave of retail investors seeking a "uranium short squeeze" as a "possible driver behind the moves in the equity markets."
Then again, it is just as likely that we have reached a point where any unexplained move higher in a stock can now be "rationalized" by analysts seeing a Reddit short squeeze.
Barnes wrote in a Feb. 3 note that a subreddit named r/UraniumSqueeze was created Feb. 1 on the Reddit website amid a retail-driven rally in silver markets and had already accrued about 500 members. Users on the social media site called on other day-by-day investors to invest in the radioactive metal. As of Feb. 5, the group had 686 members.
"We also suspect that a short covering rally in uranium equities could have been catalyzed by the short-squeeze in other assets (e.g. GameStop), as institutions covered positions to fund losses elsewhere," Barnes said.
According to MI, Uranium investors interviewed during the week of Feb. 1 said they were conflicted on how much of the rally was due to retail interest or institutional investment. Some of the reaction could have been in response to a Feb. 1 note from Bank of America Securities exploring the possibility of the U.S. delaying the closure of its aging nuclear fleet, which we discussed previously.
Arthur Hyde, partner at Segra Capital Management LLC, said an analysis of trading volumes specifically in Cameco indicated that "while retail may have played a part" in a bump in share price, there was "also real capital moving into the market and taking a position in a market that's roughly thin and illiquid."
Hyde said he did not see direct evidence that uranium was in vogue among the social media users that propelled GameStop and other equities to stratospheric heights. "I don't think it's really reached that community."
However, uranium is a small market with few participants and smaller companies with high short interest, Hyde said. If something like GameStop came to the uranium space, there could be "some serious fireworks."
"While I don't think it's reached that storyline yet, and I'm not sure it will ... to the extent it could become of interest to that kind of retail investor, I just think the ability for it to move is there," Hyde said.