A New Bull Market for Uranium 7 comments
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As of May 15th 2009, the price of uranium (U3O8) was $51 per pound, down 62.5% from an all-time high of $136 in 2007 (see chart, click to enlarge). From a low point in September 2008, however, uranium has managed to rise around 28%. It appears that the price of uranium has bottomed out and is headed into another bull market phase. This, however, has little or nothing to do with Obama's stimulus plan or Bernanke's magic dollars. It all comes down to the basics of free market capitalism - supply and demand.
Nuclear Renaissance
Although anti-nuclear organizations gained a large enough momentum to kill the development of nuclear power in several countries around the world (Italy, Sweden, Austria), there is renewed hope for the nuclear industry. In the face of impending electricity shortages, global warming, air pollution, geopolitical problems and fossil fuel price increases, the nuclear industry has once again been given a chance to prove itself. Around the world, countries are taking another look at nuclear power. The more active of them, like China and India, are already constructing new power plants.
As of 2007, the IAEA reported there are 439 nuclear power reactors in operation in the world, operating in 31 countries, providing 15% of the world's electricity. Although the share of nuclear power in the overall electricity production has been dropping and will very likely continue its decline, the number of nuclear reactors is set to rise in a healthy, not too slow, not too fast, pace.
New reactors
During this century alone, China has connected 8 new nuclear reactors to its power grid, which brings its total to 11 reactors. Additionally, China has ordered 100 new reactors from Westinghouse Electric to be in operation or under construction by 2020. Italy, formerly opposed to nuclear power (they banned it in 1987 by referendum), has now decided to embrace nuclear power. Other European countries, some of which are worried about the flickering natural gas supply from Russia, are also looking into developing their nuclear capacity. The same is happening in the United States. According to the IAEA, a total of 45 new reactors are already under construction worldwide.
The problem with supply
The world demand for uranium has outrun the supply of newly mined uranium for well over 10 years (see chart, click to enlarge). The difference between supply (of newly mined uranium) and demand has been matched by decommissioning old nuclear war heads under the famous Megatons to Megawatts program, of which the US counterpart is USEC (USU). The agreement between the United States and Russia provides US nuclear power plants with uranium from dismantled Russian nuclear weapons. The current program, which is scheduled to end in 2013, provides 50% of nuclear energy produced in the United States. Although it would be possible to extend the program, the Russians have said that they are not interested in it (part of it has to do with securing the transport of uranium in Russia).
In the recent years, however, the uranium industry has been looking into expanding its production capabilities:
The uranium market has demonstrated recent strength, with major new investments and expenditures for exploration increasing more than 254% over the two-year period from 2004-2006. Over $774 million was spent globally on exploration in 2006. [IAEA]
With new capital investments coming online, the uranium industry is factoring in growing demand from new reactors as well as the possible expiration of the Megatons to Megawatts program. Taking all that into account, the market is still set to remain tight - developing new mines takes time, especially so when one has to overcome political will (more precisely, the lack of it). This makes uranium mining companies one of the best places to put your money for the long term.
Next time I will be writing about specific companies to invest in. Add me to your follow list to receive the update.
Disclaimer: No Positions
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This article has 7 comments:
$136 was a moment of insanity for traders. $51 sounds more plausible in a long term. However, so did $67 and then $62 and then $68. I wouldn't bet my life calling $51 the bottom.
1. fuel reprocessing - most of the spent fuel in this country can be reprocessed and hence the demand for mining will go down (we have 40+ years of spend fuel lying around). Reprocessing is not legal in this country yet, but I suspect that to change with the new reprocessing methods that prevent accumulation of Pu-239.
2. No long-term storage solution - No where to put the waste. Obama just killed the Yucca Mountain project. Now there's no long term plan other than storage on site.
3. Advances in reactor design - the newer plans require less abundance of U-235. U-235 makes up less than 1% of all Uranium, this is why we have to mine so much of it. The newer reactors use less U-235 and there's plenty of U-238 available.
Overall, I think the mining sector is too speculative although I did buy DNN at 0.60.
If you're counting on a "Nuclear Renaissance" in the near term I think a safer play is the companies that make specialized parts OR actually build the plants.
362525 - SGR may be worth considering for a play on plant construction. It seems to me that your outlook is heavily US-centric and I would suggest that the nuclear/uranium power play is better analyzed in a global context. For example, the Koreans and Japanese have been the ones that have been actively entering joint ventures with uranium exploration and near-term production companies.
Obama and Chu were idiots to suspend Yucca mountain when there is NO pathforward for spent fuel. I digress...
China, on the other hand is facing a major energy crisis (along with air pollution problems) and they are about ready to go into massive production of new nuclear reactors. Add in India, and there will be a supply and demand problem with yellow cake.
On May 20 05:35 PM User 362525 wrote:
> There's several risks against miners left unmentioned here. Besides
> the usual litigation tactics used against companies that try to build
> new power plants, other issues include fuel reprocessing, long term
> storage solutions, and advances in reactor design.
>
> 1. fuel reprocessing - most of the spent fuel in this country can
> be reprocessed and hence the demand for mining will go down (we have
> 40+ years of spend fuel lying around). Reprocessing is not legal
> in this country yet, but I suspect that to change with the new reprocessing
> methods that prevent accumulation of Pu-239.
>
> 2. No long-term storage solution - No where to put the waste. Obama
> just killed the Yucca Mountain project. Now there's no long term
> plan other than storage on site.
>
> 3. Advances in reactor design - the newer plans require less abundance
> of U-235. U-235 makes up less than 1% of all Uranium, this is why
> we have to mine so much of it. The newer reactors use less U-235
> and there's plenty of U-238 available.
>
> Overall, I think the mining sector is too speculative although I
> did buy DNN at 0.60.
>
> If you're counting on a "Nuclear Renaissance" in the near term I
> think a safer play is the companies that make specialized parts OR
> actually build the plants.
Why dicker over price? More uranium is necessary . Even the Obama fear followers over nuclear power cannot stop the international demand.I will buy more CCJ. The components of the piping for nuclear power plants could be a buy. But metals are produced everywhere. Maybe BHP and SGR are a buy.
Also time to get into BHP and GMO as a back up.