Investing in Uranium as prices top $90 a pound!
Commodities / Uranium Mar 14, 2007 - 08:43 AM GMT
Wow! This mortgage meltdown you're seeing in the stock market is exactly what Martin and Mike have been warning you about all along. Boy, am I glad they're on our team!
Meanwhile, the uranium market is booming regardless of the stock market. Just last week, an Australian uranium mine got clobbered by a powerful cyclone. And the damage to just that one mine could result in losses exceeding all the new uranium production coming online this year!
So uranium prices are reacting to the news by blowing through the $90-a-pound mark.
But uranium stocks don't yet reflect the surge in the metal. This, to me, looks like a real opportunity. Especially since I see $100-a-pound uranium right around the corner.
Today, I want to tell you why I think uranium prices are going to keep moving higher faster than anyone expected. And then, I'm going to show you how I pick out the best companies to invest in.
Let's start with that mine disaster in Australia …
George Drowns Ranger; ERA Declares Force Majeure!
Ranger is a mine owned by Energy Resources of Australia (ERA). Unfortunately, Cyclone George, a category 4 storm, caused serious flooding at the property.
As a result, the company declared force majeure . This French expression literally translates as “greater force,” and is invoked by miners and other companies when natural catastrophes interrupt expected operations. It basically means, “Sorry, we can't deliver. God just gave us a flat tire.”
The upshot is that ERA will have trouble delivering its promised uranium shipments.
In 2006, production at Ranger was 4748 metric tonnes (10.5 million pounds) of uranium oxide (U3O8). This year, it was supposed to hit 11.5 million pounds.
ERA has already announced that thanks to the flooding, first quarter production will fall between 20% and 30% compared with the year earlier period.
The company also said that production would be impacted in the second half of 2007. The company hasn't come up with an estimate yet, but some outside experts estimate that 2007 production could be as low as 7.5 million pounds because of serious flooding.
Now, a loss of four million pounds would represent about 4% of global production. That doesn't sound like much until you realize that there is only two million pounds of U3O8 on the uranium spot market right now. What's more, four million pounds is more than all the new uranium production that is coming online this year!
And remember, Ranger is just the latest mine to be flooded …
Slow Going at Cameco's
Flooded Cigar Lake Mine
In a previous Money and Markets , I've told you how uranium sales at Cameco Corp.'s Cigar Lake project could be deferred for up to seven years. Here's the latest news …
The company says it's “making progress” on phase one of its rescue scheme, and 11 of 14 drill holes are now complete. But that means the company isn't even through drilling ... and water is still pouring into the mine so fast that some miners are joking that Cameco should convert Cigar Lake into a hydroelectric plant!
The problems at Cigar Lake are not for lack of trying — Cameco has some of the best engineers in the world. One thing's for sure — Cigar Lake won't be producing uranium any time soon.
Cigar Lake was supposed to produce seven million pounds of uranium in 2008 and 18 million pounds annually after that. In 2008, uranium demand was already expected to exceed supply by 25 million pounds. So with Cigar Lake out of commission, that supply/demand gap will be 32 million pounds — an increase of 30%.
Here's another way of looking at it: Cigar Lake was supposed to supply a tenth of the world's uranium in 2008. So this is like the oil market losing Saudi Arabia for more than five years!
It's not a good situation, especially since …
Global Warming Is Adding Urgency to Already Hot Demand
Ranger was hit by Cyclone George during Australia's wet season, just weeks after the Australian government issued a weather forecast saying, “The Northern Territory outlook for total March to May rainfall shows no strong swings in the odds toward wetter or drier conditions.”
And on the heels of George, it looks like that part of Australia got a lucky break when another cyclone that was originally a category 4 storm was downgraded to a category 1 as it made its way toward land.
Scientists say that global warming will make hurricanes and cyclones more intense. It's ironic that global warming might be hurting uranium supplies at the same time that it's causing people to consider cleaner sources of power , such as nuclear plants.
Although there's some not-in-my-backyard resistance to nuclear power, movies like An Inconvenient Truth are helping to change minds in a big way. For one thing, people are realizing that we have to stop building so many coal-fired power plants.
An average 1-gigawatt coal-fired power plant produces about seven million tonnes of carbon dioxide, perhaps 200,000 tonnes of sulphur dioxide, and about 200,000 tonnes of ash every year. That ash contains toxic pollutants, heavy metals and slight traces of radioactivity. Heck, coal-fired power plants are allowed to produce more radiation than nuclear power plants. Talk about irony!
In sum, along with pumping out tons of toxic heavy metals and ash, coal-fired power plants contribute about 9.5 billion metric tonnes per year of carbon dioxide, a greenhouse gas. Greenhouse gases are helping warm up the Earth.
Meanwhile, working nuclear power plants produce ZERO greenhouse gases. If the amount of nuclear power were doubled, replacing coal plants, greenhouse gas emissions from electricity generation would drop by 25%!
World electricity demand is forecast to double by 2030. In China, power generation requirements are expected to almost double in 15 years, with much of this being met by nuclear plants.
Right this very moment, there are over 100 nuclear reactors under construction or in the planning stages, a huge 25% increase over the number of existing reactors. Japan has 11 in the works. China has 30. India is working on 20. I expect there to be many, many more as the world wises up to how nuclear power can save our bacon from frying in global warming.
Since a typical 1-gigawatt nuclear reactor requires around 200 tonnes of natural uranium a year, that means more demand on already tight supply.
Bottom line: Supplies are suffering, demand is going to soar, and prices are going higher.
Get Ready for A Buying Frenzy!
For a long time, utilities insisted that prices would go down. Many of them put off signing new contracts because they were absolutely sure of it.
Now, they're scrambling. Since they have to plan far, far ahead, I expect them to start offering big, fat contracts to every producer and near-term producer they can find.
So where should you invest in the uranium space? I favor small, often little-known companies that are near-term uranium producers. And right now is a great time to seek out some bargains.
Reason: Many of these stocks pulled back along with the rest of the market in the recent sell-off. Here's the really interesting part …
The price of gold went down, so sure, gold mining stocks did, too.
Likewise, silver stocks are down because the price of silver is down.
And uranium miners are down because ... the price of uranium is going up?
Exactly! It doesn't make sense! Uranium just broke through $90 a pound, up 25% from early January and 350% from the beginning of 2005.
So that means my favorite uranium explorers and miners – some of which have pulled back 20%, 25%, even 30% in the latest market sell-off – are trading at huge discounts!
Six Smart Steps to Buying Undervalued Uranium Stocks
If you want to invest in uranium and you want to do it on your own, here are some things to keep in mind ...
1. Pick your investments carefully by looking at both the fundamental and technical pictures. Don't just throw money at any stock that claims to be a uranium explorer.
2. Use a mental stop-loss on your trades. Know how much you're willing to lose before you buy.
3. Buy smaller stocks for the longer-term. Don't worry so much about short-term fluctuations, use them as buying opportunities. That said ...
4. Know when to sell. When a company has bad news that it is unable to quantify, it might be time to get out. For example, when ERA said it didn't know how much production would be impacted at its Ranger Mine, I told my Red-Hot Asian Tigers subscribers to sell their shares in the company. They should have locked in gains of 60% (before commissions) on that trade.
5. Look for “hidden” pounds in the ground. Do diligent research and find out which stocks have taken over old explorations that have “historical” resources that aren't compliant with modern standards. If you find the right company, it might be able to bring those resources in compliance with modern standards pretty quickly. That would send the stock soaring.
6. Remember that people are the most precious things in the mining industry today. We are missing an entire generation of mining engineers because prices cratered in the 1980s. In the heyday of the first uranium boom, there were 20,000 people working in the U.S. uranium mining industry. Today, there are just 400. If you can find a company with a lot of experienced people, they're worth more than the metal itself.
Yours for trading profits,
By Sean Brodrick
P.S. If you want to know more about six of my favorite small uranium companies, read my new report, “ Small Uranium Wonders. ” I'll tell you what to buy, and I'll send you four updates throughout the year. If you're interested in getting a copy, call us at 800-814-3047 and mention your personal code of p446-73317 or order online at my secure website.
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