Though many first world nations have become wary of nuclear power in the wake of the recent Japanese crisis, China and India continue to build additional nuclear power plants. It appears almost inevitable that uranium demand from these new and sizable locations will begin to outpace uranium supply, possibly creating dramatic shortages and price spikes to both uranium and the shares of uranium producers.
The year 2010 was a pretty positive year for uranium prices, but since the Japanese nuclear concerns emerged, uranium prices began to face downward pressure. Further, Germany decided to discontinue nuclear plant development and eventually eliminate it as an energy source, both of which hit uranium prices hard. These two nations were previously significant users of nuclear power, and the perceived vacuum to demand weakened the price of uranium and those companies that produce and/or provide it uranium.
While those nations may be cutting back on their use of nuclear power, China has since announced plans to increase its nuclear capacity eight-fold before the end of the decade. Further, India has announced a 20-year plan to increase nuclear power production thirteen-fold. Other growing nations will likely follow, provided they have the capabilities to produce nuclear power.
Below are several companies that mine and/or provide uranium for energy production, and their recent poor performance:
Cameco Corp. (CCJ) is the largest uranium producer, supplier of conversion services, and fuel manufacturer, with a $9.5 billion market capitalization. Since the Japanese crisis, Cameco has fallen from its 52-week high of $44.81 and closed this Friday at $24.28, one dollar from its 52-week low.
Denison Mines Corp. (DNN) is a uranium miner with a $615 million market capitalization. The company has fallen from its 52-week high of $4.52 company to close on Friday at $1.60, or over a 60% drop. The company has a 52-week low of $1.30, or about another 20% from its current price.
Uranerz Energy Corp. (URZ) is a fairly small uranium miner with a current market valuation of $184. The company has fallen from a 52-week high of $5.93 to close on Friday at $2.41. While this is more than a 50% drop in price, it should be noted that the company also has a 52-week low of $1.10, or less than half of its current price. Uranerz is expected to report earnings on Monday, August 8.
Uranium Resources, Inc. (URRE) is another small uranium producer, with a current market capitalization of $108 million. The company has fallen from a 52-week high of $3.98 to close on Friday at $1.16. While this represents more than a 70% drop, Uranium Resources is still over 100% higher than its 52-week low of 50 cents.
USEC Inc. (USU) is an interesting competitor in the uranium market, with a current market capitalization of $261 million. Rather than mining for uranium, the company primarily converts the payloads from nuclear weapons into uranium for power production. The company also operates in the handling and potential storage of spent nuclear fuel. USEC has fallen from a 52-week high of $6.35 to close on Friday at $2.15, or about a 60% drop from that peak. USEC also reached a new 52-week low of $1.96 during intraday trading on Friday.
In addition to these individual companies, some ETFs also allow investors to gain exposure to uranium pricing and demand. For example, the Global X Uranium ETF (URA) tracks the Solactive Uranium Index, which tracks the performance of the large players in the uranium mining industry. Another ETF option is the Market Vectors Nuclear Energy ETF (NLR), which also includes exposure to energy utilities and offers a more diversified and high-yield (currently 4.94%) way to invest in energy, while still adding some exposure to uranium pricing and use.
There are no indications that uranium stocks or the price of uranium are at their bottom and it is conceivable that they will continue down further or not appreciate in the short term. The widespread attitude towards the nuclear industry and uranium continues to remain negative.
The significant downward moves by these equities indicate that a great deal of this dominant pessimism is already included in uranium equity prices. Any further moves down could indicate a bottom, and a significantly unappreciated industry. Nonetheless, it should be expected that this industry will continue to exhibit high risk/reward characteristics, and that investment allocations should be limited accordingly.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.