Uranium Mining: 5 Investment Opportunities

In my previous article, I gave an overview of the current situation in the uranium market and why I think it's headed for a new, long term bull run.

Now is the time to take a look at some specific stocks.

Uranium, like any other energy source, is in a long term bull market and the investment opportunities presented below are for investors, not traders. That is also the reason why I am not going to give any technicals on the stocks.

As my broker has limited my stock transaction to a relatively few countries, of which Australia and Canada are not a part, I have limited my field of research to companies listed on the US markets.

Cameco

Cameco (CCJ), the world's largest uranium supplier is engaged in exploration, development, mining, refining, conversion and fabrication of uranium for sale as nuclear fuel in Canada and internationally, accounting for 15% of world production. They are backed by about 500 million pounds of proven and probable reserves and existing resources. They are very active in exploring new mines and are also monitoring developments in Australia, where a new government is more supprotive of uranium mining and nuclear energy.

The Fuel Services segment also manufactures fuel bundles used in Candu reactors, as well as participates in uranium exploration and production, and fuel fabrication of the Candu nuclear fuel cycle.

The Electricity segment involves in the generation and sale of nuclear electricity.

The comapny's revenue has almost tripled since 2004, though the growth of net income has been slower. In 2008, Cameco's revenue increased to $2.4 billion, while its net income slid 11%. It's no secret that 2008 was a tough year. Cameco has decided to take advantage of that - in Q1 2009, it bought additional reserves to be sold at a later date, for profit.

Cameco Chief Executive Jerry Grandey said:

Down the road, we will realize additional revenue and earnings as we deliver the purchased material to our customers.

Speaking at the Reuters Global Mining and Steel Summit in New York, Cameco's CEO also had some optimistic words about the future; that is, optimistic for investors in the uranium mining segment.

I think the financial crisis is clearly impacting the ability of every supplier to raise capital...

When you see project cancellations, you see expansion derail, you see some projects that will just go slower. That is just simply taking away future supply and sowing the seeds of the next spike in the uranium price.

Cameco's share price has come down a long way from its top but it has also more than doubled from its bottom. Given the long term bull market for uranium, I think Cameco still has a lot of potential.

USEC

USEC (USU) is the U.S. government's executive agent for the Megatons to Megawatts program, a 20-year, $8 billion, commercially funded nuclear nonproliferation initiative of the U.S. and Russian governments.

This means that USEC provides around 50% of the total nuclear fuel used in US reactors!

As of December 12th, 2008, USEC has recycled 352 metric tons of HEU into 10,214 metric tons of LEU, which, according to the agreement, means there is still 148 metric tons of HEU left to recycle, enough to provide USEC with another 4 years of uranium.

The company is also working on a 'next generation' enrichment plant called the American Centrifuge Plant, the technology of which was developed by the US DOE. To finance the new plant, USEC has ceased paying out dividends in 2005.

All in all, USEC provides enriched uranium for 150 reactors worldwide, which makes it a uranium industry heavyweight (there are just 439 commercial reactors on this tiny planet).

In addition, USEC Inc. provides nuclear energy solutions and services, including the design, fabrication, and implementation of spent nuclear fuel technologies; nuclear materials transportation; and nuclear fuel cycle consulting services.

On the financial side, USEC is doing pretty well. Its revenue has been going up steadily for years now, although it comes as no surprise that 2008 was a weak year for them as well with a 17% drop in revenue and a 49% drop in net income.

Its share performance has been very erratic over the last year, which is not really that bad as it offers swing traders a chance to make a fast profit. Investors could also benefit by entering once the share price has dipped (again).

Others

Besides Cameco and USEC, there are many smaller uranium companies listed on the US markets but I see no reason why anyone should invest in them as they are very risky and more often than not are still in exploration stage.

As a long term investor, I would like to see a company that already has a product and a viable business strategy.

For investors who would like to diversify, there is the option of buying nuclear ETFs:

• PowerShares Global Nuclear Energy (PKN)
• iShares S&P Global Nuclear Energy Index (NUCL)
• Market Vectors Nuclear Energy ETF (NLR)

For those who are interested in the uranium mining industry and would like to buy themselves in for the long term, I suggest you make yourself familiar with the basics of how uranium is mined, milled, refined and reprocessed. There are many good places to start, including the IAEA website, but you might also want to take a look at the uranium miners' websites.

As I said above, I am not going to give you any technical advice, but even if you're buying in for the long term, you might want to take a look at the technicals yourself to determine the best entry point.

Disclosure: Long Cameco

Comments

[anarchist:]

I think this article would have been relevant a few months ago when CCJ was about 14.71 instead of 26.66 up 73% as of yesterdays close. I hope uranium has a big future in the U.S. and eventually I think it will, the question for me is "will I live long enough to see that eventuality and profit from it?)

May 21 10:48 AM

[Kristjan Ve...:]

[The benefit of hindsight doesn't make us any wealthier, unfortunately.]
As I pointed out in the article, I consider these two uranium miners a long term investing opportunity. I think they look attractive at the current prices.

May 21 12:53 PM

[manya05:]

We live in a world now where markets are not free markets anymore, but forums highly manipulated by governments. Not a good time to be an investor. I place uranium in the same category, even if you think nuclear energy makes sense, it will not be the marketplace that will decide, it will be a government (and not based on reason, but political considerations). As such, I think uranium investing is very dangerous and speculative. Not sure I would go there (unless you have insider information from the powers-that-be on the fate of nuclear).

May 21 02:16 PM

[Kristjan Ve...:]

Care to provide any specifics about uranium manipulation? Even if spot uranium prices are being manipulated, it doesn't change the game one bit as uranium companies have long term contracts with uranium prices bound to a certain range (a floor and a ceiling). I would strongly suggest you to take a closer look at the uranium industry, not just the spot price.
www.cameco.com/investo.../

May 21 05:22 PM

[Gaucho420:]

USU entire business is now dependent on a DOE loan to finance the American Centrifuge. If they get that loan, gravy...if they don't, $3 here we come, as it'll be tough to find financing from a non-governmental source at this point. But once its approved and it appears that the program is taylored for them, perhaps the stock will hit $10.

Entry point for USU is below $5.

I'm not sure why this isn't mentioned in the article....USU was actually part of the DOE until the government privatized them, so given the existing contacts and relationships, one would think they'll get the loan.

I like CCJ as well and it still has room to grow. I'm long on both, but I own just USU at this point.

May 21 05:23 PM

[Philipp:]

What is the likelihood that USEC will receive the DOE billions for its centrifuge enrichment project? How is the Silex process, a laser-based competing enrichment technology, coming along? It was licensed to General Electric in 2007. Its development received support from USEC for several years up to 2002. A fairly recent press release (04 Feb) by GE reveals that this venture is alive and well, being pursued together with Hitachi - and Cameco (24%). GE has received NRC approval to run a "test loop" to demonstrate this-and-that, including commercial viability, but the full licensing process apparently may take some 30 months. (gepower.com/prod_serv... All this does not mean that USEC wont get its money, unless the laser enrichment beats the centrifuge by a mile.

May 22 09:51 AM

[Universal H...:]

Nice article, Kristjan. Please continue to tag your pieces with NLR, PKN & NUCL to catch those of us who invest in the sector more broadly.

May 23 03:46 AM

[numericalex...:]

CCJ is also one of the very few uranium miners making a profit in 2008, making it for many investors the only choice.

I am bullish on nuclear power, we simply can not produce enough solar power in the future and oil/coal is too polluting.

Maybe the uranium price will go up when USEC is done with recycling. That could be CCJ's bet when they bought uranium under their cost price.

May 26 04:11 PM

[mlyn:]

Does anyone know anything about Thorium as a nuclear play over uranium?

May 28 12:54 PM

[Superpsiboy:]

Solutions to waste, proliferation, salt cooled, thorium blanket,
UAE Deal, Punj Lloyd JV India, .......


thoriumpower.com
news release's

yahoomessage board has thourgh history

S.P. Boy

Jun 04 04:25 PM

[Superpsiboy:]

thoriumpower.com
yahoo thpw message board, both for info

thorium blanket/fuel
salt cooled methods
retro-fits
non- proliferation
burns spent fuel/resolves waste problems
do your research

Jun 04 04:27 PM

[Jimmy / pus...:]

Kristjan, Mr. Author. Thank you for the information on uranium. I have a modest portfolio in my non-401 accounts. I have *recently* bought 100s of CCJ, 125s of UEC, and 60s of TIE (titanium). Question: I am looking at a 5 year horizon, so I will be investing additional $500-1,000 monthly. What additional mining or refining stocks or ETFs should I consider? Many thanks for your response and that of your readers. Jimmy

Jun 06 01:31 PM

[Kristjan Ve...:]

Jimmy,
I'm afraid that there is going to be another market crash very soon. Hence, I would advise you to pull out of the stock market until you really see blood on the streets. I'll be writing a post about it soon enough. Keep your eyes open and don't trust the 'green shoot' mania, it's all just hogwash created by the financial media so they have something to talk about (you see, if they don't produce 'news', they're out of business).

I'm not sure that putting your money in such a small company as UEC is very smart, but then again, it's your call. I just don't trust small companies to run a uranium mine/mill/refiner/what... I have to admit that I don't know anything about TIE. You wouldn't want to overdiversify, but I'd suggest picking up some NLR. If you live outside the US, it'd wise to put some of your money on Canadian stocks (not the ones listed in the US; the ones listed on Toronto's exchange), because the way the US is printing it's way out of the crisis will not have a positive effect on the dollar.

If you're really that fond of mining, maybe you should consider picking up some gold and silver miners. But again, wait for a dip (a large one coming soon to a broker near you). Keep your eyes open and don't always go with the flow!

Jun 06 03:50 PM