A big story in the uranium market is Obama's declaration of a national emergency regarding "the risk of nuclear proliferation created by the accumulation of weapons-usable fissile material in the territory of the Russian Federation." Translated into investor-speak, this is a statement pertaining to the Megatons to Megawatts agreement in which Russia sends downblended uranium from its stockpile of nuclear warheads to the US, which in turn can use the uranium received as an energy source.
The first thing that should be noted about this national emergency is that it is a continuation of an existing policy. If Obama did not issue this executive order to continue a national emergency that was already in place, it simply would have lapsed. The executive order basically states that the material received from Russia can only be used for peaceful purposes, and that Obama will use all of his executive powers to ensure this. For such a peaceful and mild-mannered proposition the term "national emergency" is needlessly alarmist, generating much fear and speculation, but that's all there really is to it.
Marin Katusa shared an excellent analysis of this event; I quote an excerpt:
Why is Obama reiterating that Megatons-related payments and properties are off-limits to all? Because Megatons is set to expire in about a year, and the United States is desperate to convince Russia to extend the deal. And we don't think Putin is interested at all.
You see, Megatons provides the US with a reliable source of inexpensive nuclear fuel. That's a hard thing to come by today. Global demand for uranium is set to climb 33% from 2010 to 2020, and then will climb almost that much again in the next ten years. Can production keep up? Not likely. That means prices are going up. Putin know this - in fact, he's been working for several years to position Russia to profit from the looming uranium-supply crunch.
I agree with this analysis. At most, the re-authorization of the national emergency is an attempt on the part of the US to continue and extend the Megatons to Megawatts agreement, rather than have the agreement end so that Russia can sell its downblended uranium on the open market. I agree with Katusa in that I find it unlikely that Russia is interested in extending this agreement.
Russia's control of the uranium market is something uranium investors should be aware of. The country has uranium mining operations of its own, but more importantly, has significant joint venture partnerships pertaining to nuclear power plant construction and uranium enrichment with Kazakhstan, one of the leading uranium producers in the world.
The geology of Kazakhstan is particularly conducive to in-situ recovery mining, a low-cost form of uranium mining that is currently the only form of uranium mining that is viable while uranium prices are below $80 per pound (spot prices are currently just above $50). Russia has also expressed interest in purchasing US uranium mining companies. And of course, it has the largest source of secondary uranium thanks to its stockpile of nuclear warheads.
Based on the situation at hand, it seems likely to me that Russia, along with China, is making a serious uranium grab. I believe the by-product of this will be a sharp increase in uranium prices, and probably at a fairly steep acceleration rate once the move starts.
Many uranium stocks are lower than they have been even after Fukushima, and so I think this an outstanding buying opportunity. Personally, I've accumulated more uranium shares than I ever intended to simply because of how cheap they are relative to the opportunity at hand. My favorite plays here, as I noted numerous times in my commentary on Seeking Alpha, are Uranium Energy Corporation (NYSEMKT:UEC) for growth and Cameco Corporation (NYSE:CCJ) as a stable player.
I should also note that in light of the potential for an attempt by Russia to corner the market, it may be prudent to pick up some shares in Uranium Participation Corporation (OTCPK:URPTF), which is a corporation that simply holds uranium - it does not engage in mining. I do believe the miners will rally, and in fact will rally more than the commodity itself, especially since many of the miners like UEC are stockpiling portions of the uranium they are mining in anticipation of higher prices.
Still, though, there is the chance that the commodity will go off and running while the miners remain sluggish. As such, I consider it prudent to use Uranium Participation Corporation as an opportunity to prudently diversify one's uranium position to include both miners as well as the underlying commodity.
In conclusion, I consider a re-test of the previous highs in uranium to be likely. My previous post on Why uranium could go to $200 and beyond elaborates on my assessment of all the factors in this market, and why it remains one of my favorite opportunities.