Already, there is a huge supply deficit for uranium. Annual production is running approximately 40% below current demand. The shortage is being drawn from inventory and down-blending of uranium from nuclear weapon stockpiles.
The supply crunch is even more pronounced when you consider that a growing number of countries are planning to build a slew of nuclear reactors. With the emergence of China, India and other growing economies, securing energy supply has become an important concern. The heightened demand for energy, higher oil prices, and geopolitical instability among key energy suppliers have all contributed to more strategic thinking when it comes to securing vital long term energy resources. Nuclear power seems to be the logical and environmentally friendlier solution.
Uranium spot prices have surged from about $7 in 2000 to $45 today. Yet it still has a long ways to go. On an inflation-adjusted basis (based on constant 2004 prices), the price stands at approximately $20+ versus historical highs of over $100 during the 1970s. The low inflation-adjusted price, long period of under-investment, and upward shift in demand all smells very similar to the scenario that has unfolded for gold and oil.
So how do you play this emerging secular bull trend for uranium? Find companies that have reserves, are already producing, and have management teams with past uranium mining experience. One of these is Uranium Resources Inc.(URRE.OB) This is a Texas based company that has acquired uranium asset from the major oil companies back when they divested themselves away from the sector. It is among the handful that already has production rather than the plethora of riskier exploration stage mining concerns that are out there. The stock has corrected somewhat from its high, similar to the uranium sector as a whole, but looks ready to rally and resume its upward trajectory.
Full disclosure: Author owns shares of URRE.OB