Uranium made a high of ~$150/LB in 2007, since then price has collapsed and struggled to gain any sort of positive price momentum. Now there appear to be several catalysts for a major trend reversal.
First and most interesting: Last week, USEC (NYSE:USU) released a report that they have converted the equivalent of 16,000 nuclear warheads into usable fuel for nuclear plants. Those 16,000 nukes represent about 400 metric tons. They also said the program intends to convert 20,000 by 2013. That means they have already converted 80% of what Russian intends to return to the uranium market. Article attached here.
Even if you can't trust the target of 20,000, there is no denying that 16,000 nuclear warheads being recycled is quite significant. There are some disputes about the totals held by Russia, and they did say "the equivalent of", so some of the recycled uranium may already be from dismantled nukes. Nonetheless, this must be a significant percentage of what Russia could even possibly eliminate. Here is an estimate of the world's nuclear weapon totals.
China will be a major driver of demand. Most estimates project China to expand their demand by ~5X by 2020. In 2010 China is expected to import 5000 metric tons of uranium. An expansion to 25,000+ tons imported would be a major boon for miners. In addition, Obama is a nuclear energy supporter and the U.S. could add to the demand for uranium.
Finally, the underperformance relative to other hard assets since the market collapse can not last forever. In the short term there can be divergences, but I am a big believer that, aside from major fundamental market changes, hard assets should move in tandem. On the chart, $40/LB has served as major support for the spot price, and if it can break out of the level of $55/LB who knows when the momentum would stop. It might be prudent to buy on that breakout, but I really like the risk/reward here. Also if you plan on playing through a miner (CCJ, BHP, RTP, FRG, OTC: PALAF, OTC:ERASF, UUU.TO), their price perfromance could lead the breakout.
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Disclosure: Long CCJ