House Mountain Partners


A Closer Look at Uranium: Is This Dog About To Have its Day?

Chris Berry1 Comment


By Chris Berry (@cberry1)

 For a PDF version of this note, please click here.  



·         A full five years after the meltdown at the Fukushima-Daiichi nuclear facility very little has changed within the nuclear industry.

·          Nuclear power’s contribution to the global electricity mix remains steady at roughly 11% according to the IEA.

·         Globally, the nuclear fleet numbers 440 in size across 30 countries requiring around 170 million pounds of uranium. 66 reactors are under construction and another 173 are planned[1].The existing fleet generates 382 GW of electricity.

·         The uranium market is adequately supplied with current demand at 172 million pounds of U3O8 and primary supply of 146.5 million pounds plus secondary supplies of 42.9 million pounds as of 2014.

·         The current uranium spot price of around $28 per pound reflects an evolving dynamic consisting of excess supply, reactor underfeeding (excess enrichment capacity), and uncertainty around the Japanese reactor fleet where only three of the 54 reactors are back on line.

·         Current prices are too low for producers to consider major capital investments with many believing that the incentive price is ~$65 per pound.

·         The recent Paris COP21 agreement, whereby 193 countries agreed in principle to move towards carbon-free sources of energy is a catalyst for cleaner sources of energy. Nuclear currently stands alone as the single scalable source of base load electricity. Japan’s intention to re-start a select number of reactors in their existing fleet going forward is also a positive catalyst, though many are disappointed that this hasn’t happened sooner.

·         Another tailwind has come from the strength of the US Dollar. The USD has appreciated by 16% against the Canadian Dollar, 29% against the Kazakh Tenge, 20% against the Australian Dollar, and 59% against the Russian Ruble – all major uranium producing jurisdictions. This has alleviated producer margin compression somewhat.

·         New reactor technologies, including Small Modular Reactors (SMRs), are a welcome sign but could be indicative of lower long-term uranium demand. This will be an interesting dynamic to watch closely.

·         Despite the many paradoxes, uranium remains critical to the growth of zero-emission base load electricity; I believe the underperformance of a basket of uranium names demonstrates a unique contrarian opportunity in a moribund commodity sector.

2016: There's Something in the Air

Chris Berry2 Comments

By Chris Berry (@cberry1)

For a PDF version of this note, please click here.

As is the case this time of year, we start to close the books on 2015 and position for 2016. While we have effectively and indefinitely moved “to the sidelines” with respect to stock picking in the junior mining space, there were some notable successes, in particular with the merger between Western Lithium (WLC:TSXV) and Lithium Americas. This combination positions the new company in a unique strategic light as electrification, underpinned by the lithium ion battery, gathers steam in 2016. Galaxy Lithium’s (GXY:ASX) restructuring is another positive development. We’ll be watching the developments with these two companies closely.

In 2015, there was very little to be cheerful about in the metals markets and to be blunt, we expect this malaise to continue into 2016. China’s RMB devaluation last summer...

Berry's Big Seven: Questions To Ask Energy Metals Companies This Earnings Season

Chris BerryComment

By Chris Berry (@cberry1)


Please click here for a PDF of this note.


Investors in the small cap mining sector are well aware of the “end game” for the junior mining plays - either a take out by a larger company or the mythical “get into production” (which few achieve successfully). Significant structural barriers including strong deflationary headwinds and traditional cyclical issues have altered this line of thinking. I think this mandates that we evaluate the natural resource sector differently.

This is why I continue to believe that those companies with a competitive and disruptive advantage are better placed to survive the current commodity collapse and emerge when global supply and demand forces eventually equilibrate in the future.

That said, if every crisis provides opportunities, the current metals landscape demonstrates significant pockets of value. If that is the case, there are two questions to consider:

Where is the value? And….

What are the catalysts to unlock it? The answer to the first question is subjective; the second is more objective.

Since the end of the current iteration of the commodity super cycle in late-2011, one of the ways I have addressed these questions is through more detailed focus on larger market capitalization companies mainly through dissecting their quarterly earnings calls. Everyone has their due diligence “list” when reviewing companies (management experience, balance sheet strength, sustainability, etc), but listening to what publicly traded commodity producers and users have to say is not as prevalent.

Uranium: Have The Wheels of Consolidation Finally Begun To Turn?

Chris BerryComment

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.

The Wall Street Journal Gets It (Mostly) Right on Commodities

Chris BerryComment

By Chris Berry



  •  On Monday, the Wall Street Journal published an article titled “Commodities Rally is Half Baked” (sub, req’d).
  •  There are a number of reasons for this, but clearly excess supply is the main culprit.
  •  Not all commodities have under performed, however, and uranium offers an interesting and painful case study into how to equilibrate supply and demand.



An Unfortunate Validation of Our Thesis

Yesterday, the Wall Street Journal published an article titled “Commodities Rally is Half Baked” (sub, req’d). The gist of the article is that while 2014 started off as a positive year for commodity returns in general, the tide has turned and many commodities (as measured by various indexes) are now under performing the typical equity index as the latter continue to reach all time highs.

What to Watch for With Energy Metals During this Earnings Cycle

Shelley Chen
  • With evaluation of junior resource companies challenging using discounted cash flow models, an alternative approach to understanding the various market sectors is a must.
  • I have written a great deal in the past about the benefits to be gained from listening to earnings calls from commodity and materials producers.
  • You must "read between the lines" of what is said and written, but statements made by CEOs and CFOs of large cap companies can offer insights into the strengths and weaknesses of various markets. This can only help with your analysis.
  • Today, I offer some of the insights I'll be listening for during calls this week and next. I also offer a list of companies whose calls I will be dialing into.