Hi Everyone,
A few personal news before you notice the portfolio changes are below. After months of house hunting here in Ireland, we finally found the house we will be buying. For anyone not in the known, buying a house is not a stress-free experience here in Ireland. There was a time when getting pre-approved for your mortgage and guaranteed that you would buy a house relatively soon after that. My wife and I moved from Germany to Ireland back in January. We have had the cash set aside for our cash down and closing costs, and some more. We have stable jobs and are first-time buyers, which means we can move in faster than most other buyers, but that was not enough. In Ireland, sellers will ask that, even if met, will not guarantee that you get the house. The idea is to attract many interested buyers and have them compete and bid on ever-higher prices until you reach the sale agreement.
Long story short, we finally got to the sale agreed. I preface this week’s article because I liquidated a part of the portfolio to be on the safe side until we close the transaction. We will use part of the proceeds from this portfolio to secure the full transactions costs. Now that we will be homeowners, I cannot wait to buy a few chickens to add to the garden. On the other side, my wife cannot wait to hit Ikea and increase the storage space we have. And for once, I will not complain about these “investments.”
Before moving to Uranium, I also want to address that only we speak about uranium these days. This blog is not about uranium. I have plenty of other investment ideas I want to discuss. Bitcoin, ETH, Oil, Fertilizers, Lithium, Cannabis, Twitter, big industrials, Precious Metals, Real Estate, and so on. And no, I am not falling in love with uranium either. However, it is important to remind ourselves that we did not need all the news flow hitting us to have a favorable outcome with our thesis. I keep bringing up the latest news because it keeps adding fuel to the fire. If you have not paid attention yet, I really think you should now.
China
China was always going to be central to our thesis for the increased need for uranium. This week, they dropped a bombshell not included in the thesis, which increases the certainty of a positive outcome for our stocks. Reading the below news clip from Bloomberg, and assuming a low ball need of 500k lbs of uranium per year per reactor, the construction of 150 new reactors will increase the yearly demand of Uranium by 75m lbs per year minimum. We currently produce roughly 180m lbs of Uranium per year, of which Kazakhstan is 60 m lbs. The back of the envelope math says we need a couple more Kazakstan to provide china enough uranium to reach their 2035 environment goals. Of course, that moves away from our “when” thesis and into an “if” thesis. Would china follow through? Looking at what china does instead of what they say is probably a better indicator. In the last 2 months alone, following the energy crisis debacle, China announced that they would secure their energy needs, no matter the price, and ban the export of phosphate, an industrial fertilizer of which China exports about 30%of world supply, to secure their food supply.1 As a side note, if you like the idea of exposure to this sector, The Mosaic Company and Ariane Phosphate are 2 interesting plays that I have on my radar.
2Suffice to say, it is very likely that China will follow through with this plan even if we do not need it for our thesis to keep playing out.
The Sprott Market
In May, in this article, I had coined the term that the Spott Market, meaning the price at which uranium can be bought or sold for delivery in the next 30 days, was effectively the Sprott market. I also gave a timeline to enter the uranium equity positions before Sprott would be in full effect, which was 3 to 6 months. In hindsight, that is exactly what has happened in the exact timeframe we had discussed.
I am not throwing this information as a form of self-congratulation. Plenty of experts in the field had pointed the same timeline and effect that this transaction would have on the market. However, the purpose of this context is fundamental because of the latest acquisition of Sprott Asset management. On November 5th, 2021, Sprott announced that it had bought the Index and the licensing right to the North shore Uranium Mining Index. The second biggest Uranium ETF, exchange-traded fund, is owned by North Shore, ticker symbol URNM, and tracks the underlying index that Sprott has now acquired.
3 This is MASSIVE. The third biggest holding of URNM ETF is Sprott's physical Uranium trust. Sprott Asset Management has roughly 20 USD billion under management. They have an incredible reach, marketing, and sales forces. They have effectively created their own flywheel effect. We have seen what they have done to the market in the last 6 months. Now imagine the next 6 to 12. On top of all the positive feedback loops that we had highlighted in the flywheel effect 2 weeks ago in the article “ could uranium news get any better?”. The obvious answer to that headline question is yes, but I just need to keep pinching myself.
Market Overview
Looking at the cheat sheet that I had shared in this article, we see that the sector equities for the 60+ names that we track are now about 41 billion USD in Market Cap. Adding the 3 ETFs: URA, URNM, and HURA, we arrive at roughly 44 billion USD of Market Cap. At the height of the last bull market, the uranium universe was valued at 150billion USD Market Cap. So it seems logical that we still have plenty more room to grow before wondering if this trade is too crowded.
In the above, you can see that even before March 2020, the 2 biggest Uranium ETFs have outperformed the SP&500 and the Nasdaq 100.
The road out of Serfdom portfolio
As mentioned in the introduction, we are taking chips off the table to invest in Real Estate. This was always part of our strategy. Renting in Ireland is extremely expensive and coupled with our thesis or long term sticky inflation, owning real assets, denominated in declining fiat currency for which we effectively do a leveraged buyout, buy an asset with only 10% down, and financing at a historically low-interest rate was also part of the plan. To top it off, looking at the rental market, we could rent our own house back and immediately create positive cash flow. This left us with the difficult task of selling part of the portfolio. We decided to keep only the biggest position we had as they were all private placements and some with a locked-up period. Therefore, we are left with only 5 companies.
We also trimmed our biggest winner, Western Uranium, and only kept the warrants. I can already hear people ask if you think the thesis is only beginning to play out, why would you already sell? As Rick Rule said many times in interviews, and I feel the same, I have a fiduciary duty to my wife and 2 sons to make sure and cash some of these winners. Is it possible that the stock will double or triple from here? You bet, but I will sleep a lot better at night now that I know that we already have more than 300% return in 7 months on that stock and could increase it to 500% or 600% if I were to exercise the warrants today. Was it hard to sell the likes of Vimy Ressources, AGE, EL8, LAM, and FSY? Of course, it was. All these stocks were winners and had a bright future ahead of them. Since our last article, we also trimmed our Anfield position and recycled the profits into the Appia Rare Earth and Uranium private placement. I still think that Anfield will do well in an environment where Uranium prices get closer to 70$/lbs.
Each of the 5 companies we hold has the possibility to be another home run, such as Western uranium, which is why we invested in them in the first place. Should we have another success like Western in our portfolio, we will again take chips off the table. The proceeds would likely go towards purchasing a vacation home in Portugal to rent it out most of the year while spending 2 months a year over there. I think it is important to lay out our long-term strategy. As we said in our blog premise, we wanted to grow 30k euros into 500k, which will be partly allocated to real estate.
As usual, we appreciate all the feedback and questions we receive. If you have any suggestions on improving this blog, make sure to send us your thoughts.
Cheers,
Max
https://eu.wisfarmer.com/story/news/2021/09/28/china-halts-phosphate-exports-fertilizer-prices-expected-soar/5907300001/
https://www.bloomberg.com/news/features/2021-11-02/china-climate-goals-hinge-on-440-billion-nuclear-power-plan-to-rival-u-s#:~:text=China's%20Climate%20Goals%20Hinge%20on,built%20in%20the%20past%2035.
https://sprott.com/investor-relations/press-releases/sprott-asset-management-enters-agreement-with-north-shore-indices-inc-to-acquire-licensing-rights-to-the-index-tracked-by-the-north-shore-global-uranium-mining-etf/#
Another great article, Maxime! Congrats on the new home, and well done taking a few chips off the table. Pushing that "Sell" button is much more difficult than the "Buy" button, especially when the bullish thesis is very much still intact, but it is prudent risk management.
Congrats on the new house dude! That's a big win. I'm thrilled to see your Uranium thesis is doing well for you. I went all in on crpyto last summer and I'm considering rotating some profits into real estate too. I also heard a compelling case to long microsoft and google while shorting other tech stocks. Not sure I'm gonna do it but I thought it was interesting. If you're not already watching this podcast, it's fantastic. Discussion starts at 8 minutes https://www.youtube.com/watch?v=ejW4f6liOS8