By Chris Berry (@cberry1)

For a PDF of this note, please click here.

The last constructive note I wrote on the uranium space occurred in March of 2014. My thesis was simple: a glut of excess capacity on world markets coupled with financing challenges for juniors and developers portrayed a sector that, despite the long-term positives, was set to underperform other commodities or indices.

It was time to take profits.

My timing couldn’t have been better with an equal-weighted basket of uranium names I’m tracking falling by almost 38% last year (this doesn’t take into account currency conversions, either, which likely would have hurt returns even more). Until one of several catalysts came into being including the oft-delayed re-start of some Japanese reactors or significantly higher uranium prices, uranium plays were likely best left on a watch list. It was also interesting to note that while the spot price of uranium rose to over $40 per pound in 2014 and a host of geopolitical issues with Russia rose to the fore, the froth didn’t transfer over to uranium equity price appreciation regardless of the market cap.

That said, I believed then and still do now, that a focus on low-cost near-term production stories offered the best way to “play” the uranium sector. While mineral exploration is a totally rational and necessary expense, “discovery holes” aren’t giving investors the returns they’ve become accustomed to in the current market environment and uranium is no exception. My thesis maintained that share price appreciation would come from one of two areas: the aforementioned low-cost near-term production stories or M&A.