Quakes Moves The MarketRBC Elements has been tracking the activity of uranium equities on social media over the last 10 years, and it has come to some pretty interesting conclusions. “As uranium market fundamentals have improved only modestly in the past 6 months compared to the sharp rise in equity values, we believe increased social media attention may be contributing to higher valuations,” according to the report
RBC analysts agree that continuing social media activity could keep uranium valuations high compared to actual fundamentals. However, since social media trends swerve at high speed, investors should be cautious as “contributors are unregulated and may present biased views that serve their own interests,” states the report.
Isn’t It Just a Coincidence?
To answer the trillion-dollar question, RBC Elements assures that given the social media activity of uranium equity, investors should definitely consider the sector. Although establishing a direct causality is no easy task, analysts have traced the connection between social media activity and uranium equity moves over the past four years.
In fact, since December 2020, some months display higher social media mentions for uranium as an investment which are consistent with higher uranium equity returns. They assert: “We think the improving uranium market trends have been amplified by social media excitement, driving uranium equities ahead of actual fundamentals.”
However, there is a strong chance that the rise in social media mentions on uranium equity stems from the actual growing interest in nuclear energy as an investment. Nuclear energy mentions have also increased since December 2020 after the election of U.S. President Biden and amid a larger global attention to de-carbonization –especially in the past six months.
As reported by Trading Economics, the market for nuclear fuel has been warming up recently as governments, including the U.S. and China, are veering towards including nuclear power in their clean energy plans. “Meanwhile, supply remains limited as uranium mining has been steadily cut back in recent years.”
How do Other Commodities Perform on Social Media?
What about other commodities, also critical to a clean energy transition? RBC analysts argue that the impact of uranium equities on social media is not to be underestimated, especially seen in the light of cobalt and copper.
“On a relative basis, uranium social media activity is 3x higher than cobalt and 15x higher than copper.” Since December last year, not only have uranium mentions relatively increased over the other clean energy commodities, but the actual social media sentiment is also on a high.
As it turned neutral when uranium prices plunged in 2018, mentions have been 20% net positive as of January 2021.
When taken to specific companies, strong equity performance was consistent with increased social media activity. Cameco Corp (NYSE:CCJ) reported an increase in its share price index value as the total mention count on social media jumped by 64% between the second half of 2020 and the first half of 2021.
Seeking Alpha reported two weeks ago that Cameco stock had had “an impressive run in the past year.” However, some potential short-term trends in the global market, could “deflate it in the short term.”
Share price index value also picked up significantly for Denison Mines Corp (NYSEAMERICAN:DNN), whose social media mentions have skyrocketed by 187% during the same period. Global Atomic Corp –the Canadian resource company developing the high-grade Dasa uranium deposit in Niger – saw the sharpest increase in its share price index value with an 86% in mentions surge.
Uranium Futures Are on the Rise
According to Trading Economics, uranium continues to build its momentum with NYMEX futures trading above $32 a pound and reaching their highest peaks since July 2020 in the midst of reduced inventory levels and greater demand.
It was not long ago that, during the onset of Covid-19, the radioactive metal was up 31% in April 2020, making it the world’s highest-performing asset.
The gains were driven by the mine closures that reduced more than a third of annual global production, at a time when demand from power plants remained relatively stable. “This is a double whammy in favor of uranium,” said back then Nick Piquard, ETF portfolio manager at Horizons. “Not only is Covid-19 not likely to have affected nuclear power demand much, but it is certainly impacting supply.”
What Do Predictions Reveal?
RBC Elements study also has its own sector predictions for the 2020 decade. The uranium market might be “in a slight deficit through the mid-2020s, as idled supply comes online to meet steadily growing demand.”
For the late 2020s, the report foresees a loftier deficit as demand continues to escalate with the construction of new reactors in China and the dwindling supply due to potential mine closures.
RBC states: “We have increased our 2021-2030 demand forecast by 5%, due to keeping more current reactors online and higher growth estimates in China, but this is offset by a 6% increase in our supply forecast due to increased production from Kazatomprom and the addition of Langer Heinrich to our outlook.”
The uranium price forecasts for the 2021-2025 period are ~10% higher. This takes into account the increasing financial interest to invest in physical uranium, “which may help spot and term market prices rise to better reflect current production economics.”
“We think recent renewed financial interest to invest in physical uranium should help accelerate the recovery in uranium prices to better reflect production economics by reducing uncommitted supply in the near-term,” RBC analysts conclude.
RBC asserts that there is potential for market backwardation next year, as spot prices could top $40/lb while term prices would only increase to $35/lb, to later settle at $40-45/lb through the mid-2020s.