Uranium: Unloved and Unwatched

Well before the rapid plunge of markets around the world and general deleveraging of risk occurred, the price of uranium and uranium stocks had already been correcting. Of course, now with liquidity being the order of the day and indiscriminate selling in all sectors--forced or not--uranium is to many a symbol of the speculative excesses of an era that few could have imagined would end so terribly wrong.

Signs of a top in uranium were there: interest from the general public to a point where uranium was being discussed in mainstream media, the proliferation of hundreds--many of dubious nature--small explorers with uranium in their name competing for investors' money, the parabolic rise in the price of spot uranium. Still, it is easy to view matters with a retrospectoscope, to condemn with post-hoc analyses.

What matters is looking at the present and future. Uranium is still trying to carve a bottom and with its natural link to oil as an alternative fuel, may continue to struggle as demand destruction of oil continues in a period of recessionary and deflationary pressures. As the chart below shows, the price of uranium on the spot market is approaching where they were two years ago:

 

In the same period of time, Cameco's (CCJ) stock price held up remarkably well until generalized selling forced its share price to sharply capitulate since July, essentially lopping off two-thirds of its value and forcing it to trade well below its NAV. And this is the chart of the biggest "pure" uranium company in the world; one can just imagine what the comparative charts of smaller junior explorations look like.

And yet, in this new era of pronounced fear, pessimism, or downright apathy to anything financial related, the small subset of bold investors look at the amount of blood on the streets, fight down their own misgivings, and logically reconsider the fundamentals of the uranium story. Nuclear reactors are still being built around the world and they will need fuel.

Massive oil finds are a thing of the past and people need alternative energy sources, with the benefit that even environentalists are starting to acknowledge that nuclear may be viable part of a greener future. Add in the possibility that dozens--if not more--of the smaller uranium companies may fail in the coming months due to the credit crunch, one may be provoked to start thinking of the million dollar question: who will be left? Because yes, uranium is for real and yes, the few survivors left will eventually rise up again to new heights.

Disclosure: None

Comments

[finmah@yaho...:]

You can's decouple politics and uranium (unless you are in an idealogical rage) The landscape calls for liberal labor party sweep across the US. This is the political energy trade unwind. The labor party would rather go to candles and campfires before uranium (even if candles would be a massive carbon footprint). Even natural gas is struggling with the political changes - in the next four years maybe the state sponsored radio station (NPR) will talk up uranium but the citizenry needs alot of honest dialogue which is not in the cards - hey look at the pandering with the anti nuclear crowd for ethanol!

2008 Oct 27 09:56 AM

[SWUguru:]

You are right that Wall Street really doesn't understand uranium, and therein lies the opportunities:

1. Uranium demand is absolutely recession proof over the next 5 years. Essentially all demand comes from existing plants, which have very low operating costs compared to coal, oil, and gas. This demand is also not affected by liberal or conservative politics--those policies for new plant construction will only impact demand over 5 years out, and only potentially increase demand.

2. Uranium consumption has outstripped supply in the last 10 years, and inventories have nearly all been consumed. New and more expensive mines will absolutely be required in the next 5-10 years, requiring the average price of uranium to rise to the cost of development and production of these new mines.

3. The result of the recent entry of speculators into the uranium market was for them to buy up spot uranium supplies and push the price to $150--over the average required price. As a result of the financial meltdown and the falling price of other commodities, these speculators have been dumping their uranium into the spot market in the last few months, depressing the price below the average required price.

4. The amount of uranium held by speculators is only a small percentage of demand, and once the speculators have dumped their inventories, the spot price will rise--most likely withing the next 6 months.

Because Wall Street doesn't understand these basics, the price of some good uranium companies has been depressed well under their true value. Long term investors will do well to buy at current prices. Short term investors should wait until the spot price starts to recover, and then get in quickly.

2008 Oct 27 10:30 AM

[siliconsamurai:]

The spot price of U is really not significent because of the extremely low volume.

Long term contracts are critical because no sane manager would rely on the spot market to keep the lights on in his/her country.

Consider the SWU price for usable uranium and the fact that India has cut back power production due to a lack of uranium. (SWU vs U oxide prices is comparable to the difference between crude oil which is only sold to refineries and gasoline which you can actually use.

Fortunately Congress recently permitted Thorium Power Ltd (VA) to expand its services to India in addition to current work in Russia.

2008 Oct 28 11:10 AM

[siliconsamurai:]

I'd also like to point out the amazing lows in some uranium stocks.

I'm not an internet tout so I won't list companies, but some I have invested in are actually selling below cash value! i.e. the total stock value of the company is LESS than their cash on hand. One, Alberta S** not only acknowledged this recently but stated that they are conserving cash. that means that their stock price is 100% + covered by their cash reserves, they aren't spending them on exploration, AND they own vast land concessions.

2008 Oct 28 11:14 AM

[siliconsamurai:]

would like to learn good reason to own ccj. I'm not against the company, just don't see why buying a flooded mine is a good idea.

2008 Oct 28 11:17 AM

[Ferdinand E...:]

I wonder what is going on here. 30 new plants are ostensibly on the drawing boards, McCain wants 55 or so, and since Obama's interest in renewables doesn't make economic sense, he will almost certainly change his mind if gets to the White House. The lack of faith of Wall Streeters in nucear sounds OK to me though, because except for their high grades in schools and universities, they are as ignorant as everybody else where energy economics is concerned.

2008 Oct 28 12:39 PM

[User 88433:]

Where did you find out about the flooded mine?


On Oct 28 11:17 AM siliconsamur ai wrote:

> would like to learn good reason to own ccj. I'm not against the company,
> just don't see why buying a flooded mine is a good idea.

2008 Oct 28 02:04 PM

[uranium bug:]

Same old theme about uranium supply shortage because less is being mined than used. The shortage is atotal myth which is why the price is collapsing.
You see nobody thinks to take into account world uranium inventories. I recently read an investment sheet from the USA asking where we in the UK thought we would get our uranium supplies from for our proposed new reactors. Well I can tell you we have already got a 30 year pile of it and it is already enriched and ready to use.
Also Russia announced recently it has 60 years worth of supplies and that takes into account new build.
India just announced they have115000 tons of the stuff ! That is almost double the amount of all the worlds existing plants requirements to fuel their reactors for one year.
The shortage is a total myth

2008 Oct 28 04:29 PM