Rick Rule says sparkling uranium stocks less attractive than latest bull market


Monday was wild for ASX uranium stocks, with 21 ending the day on double-digit percentage gains.

The ASX uranium frenzy took a slight hiatus on Tuesday, even as spot prices jumped from US $ 2 / pound to + US $ 44 / pound overnight.

This is a peak in nine years.

We are rapidly approaching US $ 60 / lb – the magic number many of the next crop of growers need to be viable.

Legendary investor and Sprott director and shareholder Rick Rule is bullish on uranium.

Uranium stocks? Not so much, especially in the short term.

In a Sept. 1 interview – before the last stock price explosion – Rule says he’s out of sync with the market.

“I was wrong about the uranium stock market,” he told BABY Investments.

“I expected the market to be flat. Instead, due to speculative fervor, the junior uranium market has exploded to the upside.

“I reduced a lot of my positions by 50%, 60%. I haven’t completely left the industry, but if there isn’t much to buy, it’s probably time to sell.

That was before the Sprott Physical Uranium Trust (SPUT) – which started buying physical uranium and taking it off the market in August – really started to gain momentum.

Less attractive uranium stocks than in 2007

In the last uranium bull run in 2007, Rule bought Paladin Energy (ASX: PDN) at 10c. It went down to 1c… then to about $ 10 a share.

“I’m less drawn to the uranium market in this cycle than in the last cycle because the market caps are too high,” he says.

“When I tell you about the fun I had with it [investing in] Paladin – going from 10c to $ 10 per share – one of the things people forget is the fact that the starting market cap was $ 1.7 million.

“It’s much easier to get a 10,000 bagging if you start with a market cap of less than $ 2 million, than if you start with a market cap of $ 200 million.”

When you look at the market capitalization of so-called juniors today, the place to start isn’t cheap, Rule says.

“I’m talking to an audience that a collection of the top 10 junior uranium stocks could triple within five years, and people are acting like I’m a traitor,” he says.

“’Oh no, that’s a minimum of 10 or 15 times!’ They say.

“10 or 15 times starting with half a billion in market cap, that means they’re suggesting that some of these small companies will have market caps that exceed [world’s largest publicly traded uranium company] Cameco’s [$US9.73bn market cap].

“I find that unlikely.”

Too many people in the story are now expecting 10 baggers. Rule believes returns of 300% are more likely.

“When I calculate the net present value of some decent companies at $ 60 / lb or $ 70 / lb of yellowcake, I see probable triples,” he says.

“Personally, I believe that triple bagging over five years, something like a 35% compound internal rate of return – especially since it’s a probability, not a possibility – is a good thing.

“I’m looking to allocate some of my own money and more of my clients’ money, and I’m looking to achieve compound internal returns of 35% to 40% over three to five years.

“Sounds pretty good to me. “

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