Since the Japanese nuclear concerns emerged at the start of 2011, following the destruction caused by an earthquake and tsunami, uranium prices began to face significant downward pressure. Due to this Japanese nuclear crisis, Germany decided to discontinue nuclear plant development and announced plans to eventually eliminate nuclear power 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. It also weakened the shares of those companies that produce and/or provide 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. In 2011, 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.
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. Some have argued, though, that the future of nuclear power may not rely upon uranium so much as thorium. If such a switch to thorium were to occur, this could have a devastating effect upon uranium prices.
Below are several companies that mine and/or provide uranium for energy production, and their 1-month, 6-month, and 2011-to-date performance rates.
Cameco Corp. (CCJ)
1-month performance: -5.51%
6-month performance: -41.0%
2011-to-date performance: -43.18%
Denison Mines Corp. (DNN)
1-month performance: -1.87%
6-month performance: -58.86%
2011-to-date performance: -54.09%
Uranerz Energy Corp. (URZ)
1-month performance: -10.36%
6-month performance: -52.74%
2011-to-date performance: -45.85%
Uranium Resources, Inc. (URRE)
1-month performance: -5.16%
6-month performance: -60.28%
2011-to-date performance: -67.65%
USEC Inc. (USU)
1-month performance: -6.07%
6-month performance: -61.04%
2011-to-date performance: -66.82%
The significant downward moves by these equities indicate that a great deal of this dominant pessimism is already included in uranium equity prices. The 6-month chart below shows that these companies have generally traded together in a downward trend that has resulted in the loss of between 40 and 60 percent of their starting values:
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.