Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Uranium Stocks- The Alternative Energy Bargain

Commodities / Uranium May 21, 2008 - 07:13 AM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis ArticleSean Brodrick writes: All eyes are on oil as the price of crude trends higher and higher. But one of the rules of smart investing is to look at things others have ignored or written off, because you might find real bargains there.

And this may be a good time to look at a sector we haven't looked at in a long time: uranium and nuclear power. Why? Because as oil prices dominate the headlines, the smart money is looking at uranium. As a result ...


Uranium Stocks are Rallying Sharply

Just look at this chart of the Uranium Focused Energy Fund, an investment trust in Canada. The stocks in it include Cameco, Denison Mines, Paladin Energy, Rio Tinto, Uranium One — all the big producers.

Sean Brodrick

The fund has come roaring back, up a whopping 15% from its lows earlier this month . In other words, this index of uranium stocks is heading higher in a hurry.

Looking around at some of my favorite uranium stocks, I can see not only rising prices, but also methodical accumulation and rising volume. These trends indicate that the smart money is picking up shares. And I can see some reasons why.

Industry analysts are turning bullish. In fact, I've read two different positive reports on uranium recently, from MacQuarie and Merrill Lynch. I think that is re-igniting investor interest in uranium stocks. And that could lead to these stocks heating up this summer.

But despite the powerful rally currently underway, most investors are still stuck on ...

Why Uranium Prices Pulled Back

Last year I really thought that, if trends continued, uranium prices would be a lot higher than they are now. However, five things happened to derail the bullish trend:

1) Utilities stockpiled enough uranium that they weren't desperate, so they stopped emergency buying on the spot market. Now, utility companies are well covered for the next few years by their contracts with uranium suppliers. What's more, utilities are avoiding buying uranium on the spot market in the hope that the price will decline even further.

2) A supply of enriched uranium came into the market, including 200 metric tonnes from U.S. government stockpiles.

3) The downturn in uranium prices stopped investors from buying more uranium through funds like the Uranium Participation Corp.

4) Japan shut down its reactors due to safety concerns. This should continue to weigh on demand through 2008.

5) Paladin's new Langer Heinrich mine in Namibia ramped up to full capacity by the end of 2007, and mines in Kazakhstan also ramped up production.

Most of these are short-term forces. Meanwhile ...

Why Prices of Uranium and Uranium Miners Should Now Go Up!

China has announced its intention to aggressively buy uranium resources around the globe. And it hasn't yet bought fuel for all the new reactors it plans to build. In fact, demand from China hasn't been significant ... yet.

According to the World Nuclear Association, China will build 35 nuclear reactors in the next 10 years and has 86 more on the drawing boards. This would raise its nuclear electricity producing capacity by 300%!

There are 433 nuclear plants in operation worldwide, 33 under construction, 91 in advanced planning stages, and over 200 proposed. Four plants in the United States have applied for regulatory permission to begin construction, but the bulk of the new construction is targeted for China, India, Russia, South Korea and Japan.

China and France enhanced their cooperation in nuclear power recently, establishing a number of joint ventures.
China and France enhanced their cooperation in nuclear power recently, establishing a number of joint ventures.

To the fullest extent possible, nuclear operators have been locking in forward contracts to shift the risk of shortfalls to producers. But legacy contracts at very low prices are hitting the end of terms, and new contracts will likely be negotiated at higher prices.

The U.S. government could sell more uranium from its stockpiles. However, the government says it will limit sales going forward.

Finally, rumors of takeovers and mergers are on a slow boil. At these prices, uranium miners can be screaming bargains. The latest stock of interest is Paladin Energy, based in Australia, which was trading at half the levels of a year ago when it shot higher on Monday. Driving the move: Rumors that Canada's Cameco, the world's largest uranium producer, is interested in picking up Paladin on the cheap.

Looking Forward — a Small Surplus, Then a Deficit

The uranium markets were in deficit through 2007, which drove prices through the roof. Then that new supply I talked about came on. We'll probably see a surplus of 195 tonnes of uranium on the global market this year, according to Macquarie Research and Ux Consulting, and that will increase to 318 tonnes by 2009.

But by 2010 and 2011, Macquarie believes the market should switch back to a shortage ... a deficit of 565 tonnes in 2010, 2,250 tonnes in 2011, and a whopping 4,042 tonnes in 2012. If we do go into a supply deficit, what do you think that will do to prices? Add in 160 gigawatts of new nuclear generating capacity expected to come online in the next 10 years, and I think prices could soar through the roof!

Now, not all analysts think the long-term for uranium is so rosy. Merrill Lynch, for example, thinks the market could go into surplus from 2011 to 2013. I think Merrill is counting on Cameco's flooded Cigar Lake Mine coming into production in 2011. Cigar Lake is a huge deposit, with initial production of 9 million pounds a year that should eventually produce over 18 million pounds of uranium oxide a year — 10% of the world's current demand. The problem is there's enough water flowing through the mine to make it a hydropower project.

Cameco recently said it expects Cigar Lake to be in production by 2011 "at the earliest." We'll have to see.

The Olympic Dam uranium mine in Roxby Downs South Australia is the largest known single deposit of uranium in the world.
The Olympic Dam uranium mine in Roxby Downs South Australia is the largest known single deposit of uranium in the world.

Meanwhile, Merrill also said in a recent report: "We believe the spot price (of uranium) is close to the marginal cost of mine production of some newer producers, and expect it will stabilize around current levels. This stability should be seen as a short-term floor, and a key buying signal." So even Merrill's outlook seems pretty bullish to me.

None of this is written in stone, of course. We could see more or less demand OR supply depending on future events.

And there's another factor to consider — the price of building nuclear power plants is soaring, because commodity prices are soaring. In the U.S., the projected cost is $5 billion to $12 billion a plant, double to quadruple earlier rough estimates.

To speed construction, the federal government set aside $18.5 billion in loan guarantees for the industry. But just the two nuclear plants that Florida Power & Light is planning on building by 2020 will cost around $18 billion. We need at least 30 new nuclear plants within that timeframe just to keep the amount of electricity we generate from nuclear power the same.

Plus, China, Russia, Korea, India and other nations — where labor costs are cheap, even if commodity costs are high — are building nuclear plants at a breakneck pace.

How You Can Play This Move

Bottom fishing in the uranium sector isn't for everybody. But if you're interested, the stocks in the Uranium Focused Energy Fund that I mentioned earlier are probably a good place to start. For example, I think Paladin looks cheap here. And Cameco is also pleasing investors. Cameco said its first-quarter net income more than doubled to C$133.4 million as uranium sales rose.

Just be aware that there is risk of more delays at Cigar Lake, and production this year at Cameco's Inkai mine in Kazakhstan may be as much as 50% less than the planned 1.2 million pounds due to a shortage of sulphuric acid used to leach uranium from the rock.

You could also consider the Uranium Focused Energy Fund itself. It trades under the symbol UF-UN on the Toronto Stock Exchange and there is a pink sheet tracking stock for it in the U.S.: UFEFF. This way you have a stake in a bunch of stocks in the uranium sector, so you can ride the rally without worrying that one company will torpedo your position.

Yours for trading profits,

Sean

P.S. As you read this, I'm traveling to Mexico to check out some red-hot silver mines. I'll be posting about my adventures on my new blog on the Money and Markets website . So be sure and check it out!

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in