The Top 3 Ways to Play Uranium

Includes: BHP, CCJ, RIO
by: Money Morning

By Money Morning Editors

Uranium prices have gained more than 70% from their recession bottom. And that's only the beginning.

The element is bracing for a super-surge, and we've found three ways to profit from this uranium bull market that could continue to rise through the rest of the decade and beyond.

Uranium is heading back toward its historic highs. And prices could still double before they reach pre-recession levels. That's a potential 100% gain, or more, if prices continue to increase. And they will.

Global superpowers are fast-tracking nuclear energy and combing the globe for more uranium. And hundreds of nuclear reactors are being designed and built as you read this.

Alone, that's enough to drive uranium prices higher. But it's not the whole story.

Since the late 80s, the world has been making do with a deficit of mined uranium. Present mining projects only provide enough fuel for about 70% of demand. The other 30% has been coming from enriched uranium stockpiles and former nuclear weapons. That means prices have been artificially low going back as far as the end of the Cold War.

But these stockpiles and the glut of decommissioned nuclear weapons currently used to make up the mining shortfall are both running out. And supply isn't ramping up fast enough to cover the coming shortfall in fuel.

In this report, we will uncover the truth behind the coming uranium bull run and detail three ways investors can profit as uranium prices really take off.

Fact #1: The world's superpowers are zealously fast-tracking their nuclear energy agenda. According to the World Nuclear Association, a new nuclear reactor will start up every 5 days by the year 2015.

Countries like the U.S. and Japan are developing new nuclear power plants to generate energy at lower costs than traditional fossil fuels and to curb the emission of greenhouse gasses.

Unlike oil and coal, nuclear energy emits zero carbon dioxide. And while wind and solar technologies are still wearing their training wheels, nuclear energy has a proven track record of performance. Not to mention it is the most potent and efficient source of energy among its peers.

Countries like the U.S. and Japan are opening new plants to deal with stricter emissions legislation and support their energy needs. At the same time, emerging economies, like China and India, are turning to nuclear power as a solution to their sharply increasing electricity requirements.

A look at the numbers gives little doubt.

  • China has 13 operating nuclear reactors. And in the last year alone, the Chinese government approved plans to build 34 new plants.

  • India wants to quadruple its nuclear output in the next 10 years.

  • Japan is planning another 14 nuclear power plants. Russia wants 16 up and running by 2015.

  • And here's perhaps the biggest surprise: The United States leads the world in nuclear energy production with 104 active reactors and plans to build as many as 24 more.

Fact #2: There's one problem - We're running out of uranium! The world is parched for uranium. All totaled, the world's nuclear reactors use about 69,000 tons of uranium every year. But only 51,000 tons are mined every year. Many reactors are running at 50% capacity. Some have even been taken off-line.

In the United States, the bulk of the uranium used in reactors doesn't even come from uranium mining. It comes from the approximately 20,000 Russian nuclear warheads. The uranium from these nuclear weapons is enriched and sold to the U.S. as part of a 1987 disarmament agreement.

The "Megatons to Megawatts" program has helped make the United States the world's largest producer of nuclear power.

But the program is running out of nuclear warheads to convert, spelling the end of guaranteed access to uranium supplies for U.S. nuclear reactors. When the warheads dry up, the U.S. will have to import more uranium to satisfy its needs, and by then, domestic and global demand will be significantly higher.

Fact # 3: This is perhaps uranium's buying opportunity of the century. Uranium prices rocketed an astounding 1,625% before 2008. Whenever the price of anything moves that fast, it's bound for a correction. But that correction happened to coincide with the start of the worst recession since the Great Depression. It caused the bottom to fall out of uranium prices for the next two years.

But all uranium traders needed was a whiff of an economic recovery to send prices back up. Let's be clear, the current uranium surge won't be a rocket ride. This isn't a speculative frenzy that's going to drive uranium prices far above supportable levels just to let them collapse again. This is the basic economics of supply and demand. Currently, there isn't enough uranium supply to meet the growing global demand.

Unlike most commodities in today's unsteady market, uranium will be the one that rises noticeably - but steadily - over time. And that's not a maybe. That's a definite.

Energy companies know supplies will tighten. They know the current uranium mining industry is wildly volatile. They know uranium prices are a bargain now. That's why they're already paying a premium on current prices to lock in uranium now. And smart investors are following suit now before the price moves any higher.

Action to Take:

For a pure play uranium buy, take a look at Cameco Corp. (NYSE: CCJ), one of the world's largest producers of uranium. It's also the world's largest and most liquid uranium miner. And the company plans to double its uranium production, to 40 million pounds, by 2018.

This company is a leader, and its size ensures it will remain on the forefront of the uranium boom. And as an added bonus, Cameco maintains an impressive annual and quarterly dividend for investors.

If safety and diversification are more to your liking, then Rio Tinto PLC (NYSE: RIO) and BHP Billiton Ltd. (NYSE: BHP) are attractive options.

BHP Billiton is the second-largest commodities company in the world - mining steel, aluminum, copper, iron, nickel, titanium, diamonds and gold. BHP's connection to China and their ownership of the world's largest uranium deposit, the Olympic Dam in Australia, makes them a big player in the upcoming uranium boom.

Rio Tinto is the third-largest mining company in the world. One plus is that this company is already selling uranium to mega consumer China. In the future these ties may pay off in a big way.

Rio owns 68% of the Ranger Mine, which has produced more uranium than any other mine in Australia over the past 10 years, and nearly 70% of Namibia's Rossing mine, the world's longest running open pit uranium mine and also an exporter to China.

These are the best uranium plays right now, but as time goes on, uranium demand is sure to open the doors to new streams of income for investors. And we will be first to let you know where to find those opportunities.

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