Interactive Investor

Chart of the week: are uranium shares about to go nuclear?

13th September 2021 11:42

John Burford from interactive investor

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With China expected to ramp up its nuclear energy programme we take a look at the chart for a firm set to benefit.

Not only has sentiment cooled for wind and solar in the West, but China appears on the verge of ramping up its dependence on nuclear by building more reactors. 

There is great pressure on them to cut their dependence on coal – and they can earn Brownie points galore in the West by cutting their CO2 emissions – and going nuclear.

I well remember the first Uranium Rush in the 1960s led by Canada. Canadian uranium penny shares were the meme stocks of their day. 

Then, the infant nuclear energy industry was said to promise unlimited free energy! Of course the hype was not matched by reality and a Uranium Bust ensued. 

With accidents like Three Mile Island cooling the nuclear frenzy, and an abundance of 'cheap' oil and gas, nuclear went into hibernation for many years.

But with fossil fuels now considered evil (and expensive), we are seeing a switch back to nuclear as safer reactors have been developed. The price of uranium is now advancing strongly, and so are the shares of companies in the uranium industry.

Yellow Cake (LSE:YCA) is a UK-based operation on AIM that launched in 2018 at the initial public offering (IPO) price of £2 a share.  Since then, it has been under the radar – until this month when the shares have started a major thrust into new highs.

I had a bullish chart of the week on Yellow Cake on 7 June when the shares were trading at £2.70.

Past performance is not a guide to future performance.

The shares briefly dipped under the IPO price during the Corona Crash last March but have been in accumulation mode, and this month have surged to the current £3.60. This certainly looks like the start of something big.

And another investment vehicle just launched is the Sprott Physical Uranium Trust Fund that buys physical uranium and stores it.

The background for uranium is certainly favourable since there has been little effort in exploring for new deposits by the miners with prices and demand low in recent years. 

And uranium demand is very likely to ramp up with a greater reliance on nuclear globally to meet our expanding energy needs.

I see the downside for the sector as low with the proliferation of companies that are standing ready to buy all of the output from mining – and sitting on it. 

The upward pressure on prices could be immense with little prospect for an immediate increase in supply.

In fact, it is possible prices could skyrocket if old-fashioned 'corners' appear, much like the infamous Hunt brother's attempt to corner the silver market in the late 1970s forcing prices to the skies.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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