2010 was a generally good year for uranium investments, but since the Japanese nuclear concerns emerged at the start of 2011, uranium prices began to face significant downward pressure. In its wake, Germany decided to discontinue nuclear plant development and eventually eliminate it as an energy source. Japan and Germany were previously significant users of nuclear power, and this perceived vacuum to demand weakened the price of uranium and those companies that produce and/or provide it uranium.
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.
This year, China announced plans to increase its nuclear capacity eight-fold before the end of the decade. Additionally, 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 performances over the last month and 6-month periods:
Cameco Corp. (CCJ)
- 1-month performance: -20.64%
- 6-month performance: -50.54%
Denison Mines Corp. (DNN)
- 1-month performance: -23.16%
- 6-month performance: -64.73%
Uranerz Energy Corp. (URZ)
- 1-month performance: -28.67%
- 6-month performance: -55.88%
Uranium Resources, Inc. (URRE)
- 1-month performance: -30.67%
- 6-month performance: -62.21%
USEC Inc. (USU)
- 1-month performance: -29.57%
- 6-month performance: -60.45%
The significant downward moves by these equities indicate that a great deal of this dominant pessimism is already included in uranium equity prices. Over the last 6 months, each of these companies has lost at least half of its market value. See chart, below:
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.
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 includes exposure to energy utilities with exposure to uranium pricing and use.
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.