Seeking Alpha
Deep value, long only, special situations, value
Profile| Send Message|
( followers)  

Major institutions such as JPMorgan are predicting uranium prices could move to $90 in 2016. I think it could happen even sooner.

Uranium (URA) could soar over the second half of this year. I believe the sector is making a major comeback. Long-term uranium investors are well aware of the exceptional gains in this sector like in 2007 when many uranium miners soared more than a 1,000% due to a supply shortfall. It could happen again sooner rather than later,

Most of the investment community is totally unaware of the increasing demand worldwide for clean base-load energy sources. I know you may not find nuclear power or uranium mining exciting, but it could be the greatest area for growth over the coming decades. That is why investors such as Microsoft's Bill Gates believe in the long-term viability of nuclear. It has soared before and could rise exponentially again. These are the five reasons uranium miners and the spot price could soar.

Miners Outperforming Commodity

Despite spot uranium prices dropping below $40, uranium miners such as Cameco (CCJ) are up over 30% since the November low. There is a uranium exploration boom in the Western part of the Athabasca Basin where two junior miners have made exponential gains from this major discovery. There is rising M&A activity both in the U.S. and Canada, which we expect to continue toward the end of 2013. Remember as many resource stocks have gone nowhere or down, the uranium mining space is one which is relatively strong. Be aware that the miners usually forecast a rebound in the underlying commodity price. So this outperformance of Cameco versus the uranium spot price may be signaling a potential bullish reversal for the sector.

Supply Shortfall From HEU Agreement Expiration

The Russian Megatons to Megawatts program is coming to a conclusion at the end of this year. This agreement allowed for Russian nuclear weapons to be converted to useable fuel for over 20 years. This is about 24 million pounds coming off the market annually to U.S. utilities which is the largest consumer of uranium in the world of over 55 million pounds a year. Remember the U.S. mines less than 8% of what it currently consumes.

Japan Turning Nuclear Reactors Back On

Japan could be turning on nuclear reactors later this year and may need to replenish supplies as natural gas (UNG) and oil (DBO) soar to 52-week highs. Japan is a major nuclear consumer and new buys could spur a spike in the uranium price. Ten Japanese nuclear reactors are awaiting the ok to turn back on.

Middle East Unrest, Soaring Oil and Natural Gas Prices

The price of oil is soaring past $105 a barrel. Natural gas is almost double all time lows. The Middle East crisis has transformed from the hopes of the Arab Spring into a never ending Civil War in Syria and Egypt. The Suez Canal and the Strait of Hormuz could be shut down causing a spike price in energy.

Public Sentiment Turning Positive For Nuclear Energy

Public opinion on the nuclear sector is turning positive. A recently released documentary, "Pandora's Promise," explores the transformation of staunch anti-nuke environmentalists into believers of the benefits of nuclear power. This is a popular, critically acclaimed must watch film as these environmental activists believe that nuclear energy could really transform the world.

Governments around the world including most recently President Obama have been discussing strategies to address the climate crisis. Nuclear (NLR) is the only source that can provide additional supply of base load power without hurting the atmosphere.

These environmentalists are seeing a major gap between fossil fuels and renewables like wind and solar. Renewables are unable to make up the gap alone. Coal, natural gas and oil demand is still growing.

Being anti-nuke is a dangerous policy in light of the rising demand for fossil fuels. Do not be surprised to see more mainstream environmental organizations support the development of next generation nuclear technologies that are safer, more efficient and cleaner.

The documentary debunks a lot of the nuclear myths that came out after Fukushima which caused a mass hysteria and knee jerk reaction by both the German and Japanese Government. Now two and a half years later Japan is turning reactors back on and Germany may soon make a pivot toward nuclear as electricity costs have skyrocketed.

Uranium appears to be making a double bottom and is breaking through the 200 day moving average to the upside. Watch for potential fireworks in the uranium sector as we move toward the end of 2012 for the five reasons highlighted above.

In conclusion, U.S. investors looking to play the coming uranium boom should first look at the producers which are limited to Cameco and the uranium miners ETF. The other large players are Uranium One (OTC:SXRZF) which is going private and Paladin (OTCPK:PALAF). Uranium investors looking for pure play producers are extremely limited. This means should capital come into this sector there will be few options for institutions and we could see an explosive move due to the limited options. Rio Tinto (RIO) and BHP (BHP) are big uranium producers but they are not pure play situations. After the producers the only mid cap explorer is Denison (DNN) which is in major acquisition mode.

Source: 5 Reasons Why This Small Mining Sector Could Soar

Additional disclosure: I also have investments in numerous micro cap uranium junior miners, which are not suitable for discussion on this forum.