Which Uranium Stocks To Buy: Part 1

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Includes: BHP, CCJ, RIO, URA
by: Bidness Etc

This is part 1 of the two part series where we will discuss the Uranium industry in detail. This part will give an industry overview, whereas part 2 will focus on Uranium stocks that investors can buy to benefit from the growing industry.

Introduction

Uranium is a silvery-white metallic element with a periodic table number of 92, and is represented by the symbol U. It was first discovered in 1789 and was named after the planet Uranus. Uranium is found in most rocks, and is as common in the Earth's crust as tin. It is also found in Seawater, and is recoverable from the ocean.

Uranium has the second largest atomic weight, and has a density that is 70% higher than the density of lead. It is found in low concentrations in rock, water and soil, and it is often not economically feasible to extract Uranium. If the element is found in abundance, it is referred to as an 'ore body', and assumptions are made about the market price and the cost of mining. Therefore, reserves are calculated as tons recoverable up to a certain cost.

Uranium exists in different forms, known as Isotopes, and the differentiating factor in these Isotopes is the number of neutrons held in the nucleus. The two most commonly found isotopes in the Earth's crust are Uranium-235 (U-235), which accounts for about 0.7%, and Uranium -238 (U-238), which accounts for about 99.3% of the total Uranium found.

Uranium, being radioactive, decays and releases enough heat to keep the Earth's crust warm. U-235 decays faster than U-238.

Mining

Uranium ore can be mined through conventional mining (underground and open pit) or through situ leaching (ISL) mining.

In conventional mining, the uranium ore can be extracted by underground or open pit methods, depending on the depth of the mine. Conventional mines have a mill where the ore is crushed and ground up, which is then leached with sulfuric acid to dissolve the uranium oxides.

In ISL mining, the uranium ore is dissolved from a porous underground ore body in situ, which is then pumped to the surface.

The final product from both mining processes is uranium oxide (U3O8), which is the form in which uranium is sold.

Mining methods have witnessed a decrease in underground production, and the extraction from underground mines has dropped from 55% in 1990 to around 30% in 2011. In ISL mining, on the other hand, has witnessed an increase in its share of world uranium production.

Method

tonnes U

%

Conventional underground (except Olympic Dam)

16,059

30%

Conventional open pit

9268

17%

In situ leach

24,180

45%

By-product (Olympic Dam)

3987

7%

Click to enlarge

Source: World Nuclear Association

Production

Approximately 64% of the world's uranium production is from mines in Australia (11%), Canada (17%) and Kazakhstan (36%).

The World Nuclear Association has projected 2012 production of uranium to be 52,221 tU, while the UxC expects production to be around 63,600 tU in 2012.

Country

2004

2005

2006

2007

2008

2009

2010

2011

Kazakhstan

3719

4357

5279

6637

8521

14020

17803

19451

Canada

11597

11628

9862

9476

9000

10173

9783

9145

Australia

8982

9516

7593

8611

8430

7982

5900

5983

Niger

3282

3093

3434

3153

3032

3243

4198

4351

Namibia

3038

3147

3067

2879

4366

4626

4496

3258

Russia

3200

3431

3262

3413

3521

3564

3562

2993

Uzbekistan

2016

2300

2260

2320

2338

2429

2400

2500

USA

878

1039

1672

1654

1430

1453

1660

1537

Ukraine (est)

800

800

800

846

800

840

850

890

China (est)

750

750

750

712

769

750

827

885

Malawi

-

-

-

-

-

104

670

846

South Africa

755

674

534

539

655

563

583

582

India (est)

230

230

177

270

271

290

400

400

Brazil

300

110

190

299

330

345

148

265

Czech Republic

412

408

359

306

263

258

254

229

Romania (est)

90

90

90

77

77

75

77

77

Germany

77

94

65

41

0

0

0

52

Pakistan (est)

45

45

45

45

45

50

45

45

France

7

7

5

4

5

8

7

6

total world

40 178

41 719

39 444

41 282

43 853

50 772

53 663

53 494

tonnes U3O8

47 382

49 199

46 516

48 683

51 716

59 875

63 285

63 085

Percentage of World Demand

-

65%

63%

64%

68%

78%

78%

85%

Click to enlarge

Source: World Nuclear Association

Reserves

The table below is based on the data complied on the known uranium reserves in 2009. As can be seen, Australia has the highest uranium reserves in the world, followed by Kazakhstan and Canada.

tonnes U

Percentage of world reserves

Australia

1,673,000

31%

Kazakhstan

651,000

12%

Canada

485,000

9%

Russia

480,000

9%

South Africa

295,000

5%

Namibia

284,000

5%

Brazil

279,000

5%

Niger

272,000

5%

USA

207,000

4%

China

171,000

3%

Jordan

112,000

2%

Uzbekistan

111,000

2%

Ukraine

105,000

2%

India

80,000

1.5%

Mongolia

49,000

1%

Other

150,000

3%

World total

5,404,000

Click to enlarge

Source: World Nuclear Association

Demand

Uranium demand is expected to be around 77,000 tons in 2012, and of this about 85% is driven by nuclear power generation. However, the demand for uranium is expected to increase 7% per year, and is expected to reach 110,000 tons by 2017. The increased demand for uranium is expected to be driven by energy requirements in Asia, which have resulted in a surge in Nuclear power plants in the region (China and India). This increased demand is also likely to boost the prices of Uranium going forward.

Nuclear Crisis in Japan after Earthquake

The prices of uranium have seen significant volatility, and prices decreased significantly in light of the nuclear crisis witnessed in Japan after its nuclear power plants were damaged and shut in the aftermath of the earthquake and tsunami that devastated the country. This has led to a decrease of 21% in uranium prices, to date.

However, nuclear plants in Japan are gradually coming online after receiving safety clearances.

Mining Companies

About 85% of the uranium produced in 2011 was marketed by only eight mining companies. This is due to the consolidation and mergers witnessed in the 1990's, when the world demand and prices of uranium had decreased.

Company

tonnes U

%

KazAtomProm

8884

17

Areva (AREVA.PA)

8790

16

Cameco (CCJ)

8630

16

ARMZ - Uranium One

7088

13

Rio Tinto (RIO)

4061

8

BHP Billiton (BHP)

3353

6

Navoi

2500

5

Paladin (PDN.AX)

2282

4

Other

7906

15

Total

53,494

100%

Click to enlarge

Source: World Nuclear Association

Outlook

As mentioned above, energy demand is expected to increase, driven specifically by the increasing demand in Asia. This will exert positive pressure on the prices of uranium in the future, which will be beneficial for the profitability of uranium miners.

A few companies that may benefit from increasing uranium prices include Cameco Corp , Rio Tinto plc , BHP Billiton plc , Paladin (PDN.AX), AREVA (AREVA.PA) and the Uranium ETF (URA). In part 2 of this series we will discuss Uranium stocks and ETF in detail.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.