The uranium industry is not what it used to be, nor are the share values of the uranium producers. This may well go down as the worst year for uranium in the modern era, even though several nuclear power experts continue to claim that uranium use is sensible and safe.
This first quarter of 2011 started off with Japanese nuclear concerns following the destruction caused by the earthquake and tsunami that hit the nation, and uranium prices entered a tailspin shortly thereafter. In the wake of tsunami, Germany opted to discontinue nuclear power plant development and reveal plans to eventually eliminate nuclear power as an energy source.
It also appears likely that Japan may be hesitant to build more nuclear power plants in the near future. For many years, Japan and Germany have been significant users of nuclear power. This perceived vacuum to demand weakened the price of uranium. It also weakened the shares of those companies that produce and/or provide uranium.
Subsequently, commodities entered a corrective phase. The second quarter of 2011 revealed highs for multiple commodities, including petroleum and several industrial metals. These sell-offs were largely fueled by concerns over global growth and also some investment reallocation out of what were previously profitable investments. In the third quarter, which just ended last week, uranium and its producers continued to drop along with the broader market, only mostly to a broader extent as the investment was deemed more and more speculative. Most uranium producers ended the third quarter at their 2011 lows.
Below are the 1-month, 3-month, 6-month, and 2011-to-date performance rates for several companies that mine and/or provide uranium for energy production:
Cameco Corp. (NYSE:CCJ)
- 1-month: -23.12%
- 3-month: -34.67%
- 6-month: -43.28%
- 2011-to-date: -57.10%
Denison Mines Corp. (NYSEMKT:DNN)
- 1-month: -39.35%
- 3-month: -49.18%
- 6-month: -62.25%
- 2011-to-date: -72.51%
Uranerz Energy Corp. (NYSEMKT:UEC)
- 1-month: -25.78%
- 3-month: -23.14%
- 6-month: -40.99%
- 2011-to-date: -60.42%
Uranium Resources, Inc. (NASDAQ:URRE)
- 1-month: -48.28%
- 3-month: -66.75%
- 6-month: -73.40%
- 2011-to-date: -83.56%
USEC Inc. (USU)
- 1-month: -40.28%
- 3-month: -63.82%
- 6-month: -71.65%
- 2011-to-date: -79.56%
Over the last month, these companies have lost between 25 and 29 percent, and they have lost between 57 and 84 percent so far this year. These significant losses proliferate uranium miners and producers, as can be seen from the Global X Uranium ETF (NYSEARCA:URA), which tracks the Solactive Uranium Index and is down over 60% so far this year. See the chart below:
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, it would have a devastating effect upon uranium prices and miners that are focused on uranium. Nonetheless, such technology is not yet here and experts differ on whether it will be an eventual option or remain a pipe-dream.
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.