Finally, The Long-Term Uranium Prices Have Begun To Rise

Includes: CCJ, UEC, URPTF, URZ
by: Simit Patel

The Financial Post is reporting that long-term uranium prices have finally begun to rise this week. Here's an excerpt:

According to trade publication Ux Consulting, the term price rose to US$61.50 a pound this week, up 2.5% from US$60.00. Ux's long-term price covers material that will be delivered more than two years in the future.

While there have been some minor upticks in the spot price since Fukushima, this is the first time that the term price went up since January of 2011, when the outlook for uranium was much stronger than it is today. Active buyers are ignoring the spot market right now and are focusing on deliveries into the future, industry publication TradeTech said.

This is significant, as it suggests the uranium market may finally be ready to rebound from the Fukushima sell-off. That Japan, home of the Fukushima event, is set to re-start two of its reactors is telling as well, as it illustrate what uranium/nuclear bulls already know: there really isn't much of an alternative option when it comes to emission-free, scalable, always-on energy. Put another way, if you like lots of electricity at fairly fixed, low costs, uranium-fueled nuclear power is your friend.

As uranium prices begin their march to and beyond their previous all-time highs, there are a few points investors will benefit from considering:

1. The Megatons to Megawatts agreement comes to an end in 2013; based on this, I consider prices to rise to and beyond that point in time.

2. It's going to take prices to reach at least $80, probably $90 per pound, to get interest from open-pit mining firms, and beyond $110 to get serious interest in the idea of getting uranium from the ocean (see this analysis for more on getting uranium from the ocean). Until then, only firms focusing on in-situ recovery -- ISR -- will be able to mine uranium at profitable rates. This is something investors in uranium should keep an eye out for: price to rise to $80-$90 range, and for more firms to introduce open pit mining operations as it becomes clearer prices are going to stay that high. And once we enter triple digits, the ocean as a source of uranium becomes increasingly viable from an economic perspective.

That current prices are not viable for firms that do not employ ISR mining is a key part of how I approach today's uranium market. With the exception of Cameco (NYSE:CCJ), which is large enough to have a variety of different methods of acquiring uranium and Strathmore Minerals which has what may end up being the most lucrative uranium properties in North America once prices rise and permits are issued, I prefer to focus on firms employing ISR mining. My favorite here is Uranium Energy Corporation (NYSEMKT:UEC), though I'm also invested in Uranerz (NYSEMKT:URZ). ISR deposits aren't as large as open pit deposits, although I'm especially impressed with how UEC has aggressively acquired ISR projects in a variety of jurisdictions. Add them all up, and there is a lot of uranium that can be mined at very low prices -- a marginal cost of under $25 per pound. That's viable in today's market, although it will be truly astounding when uranium goes back into triple-digit territory.

Although I prefer to focus on uranium miners because I think the upside there is immense and I'm comfortable taking the risk, those who want to speculate on just uranium -- rather than a uranium mining operations -- may wish to consider buying shares in the Uranium Participation Corporation (OTCPK:URPTF). Uranium Participation buys uranium and holds it. As the uranium market heats up and attracts more speculators -- a process I think still might take a few years and a triple digit uranium price -- I think we will find more ETFs and other vehicles conducive towards easy speculation. This I believe will help drive prices even higher, though it should be a warning sign for investors that speculators may be able to enter in large quantities. Such instances will provide us with the opportunity for the best gains, but it will be critical to maintain one's psychological composure and avoid hanging on for too long.

In sum, it looks like prices are starting to rise and we may be on our way back to the 2007 all-time highs in uranium. If you're not positioned, or if you have capital ready to deploy and want to add to your position, now is a great time to do so; there are still many uranium miners trading near their post-Fukushima lows.

Disclosure: I am long CCJ, UEC, URZ.

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