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Michael Filloon
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Michael Filloon is the head energy analyst at Split Rock Private Trading and wealth management. He is an accomplished and well respected energy analyst covering cyclical sectors including Energy & Commodities. His focus are North American shale plays including the Bakken, Permian Basin and... More
My company:
Split Rock Trading and Wealth Management
My blog:
The Bakken Update
  • Uranium Participation Corp: A Way to Trade the Price of Uranium 2 comments
    Jan 17, 2011 1:04 AM | about stocks: CCJ, DNN, UEC, URRE, URZ, URG, URA, NLR, NUCL, PKN, PALAF, SXRZF
    There has been quite a bit of excitement with respect to the price of uranium.  There are many fundamental reasons for this, and all of them point to an issue of demand as many of the countries that had been impoverished, are now beginning to grow a middle class.  This new middle class in emerging markets will do several things with their newfound wealth.  This middle class works, and where they work will need electricity to run machinery, produce heat, and provide a cool atmosphere.  Also, when the middle class go to their apartment or home they will turn on a television or lights and also want to heat and cool their home.  In many of the emerging markets, there is a problem with getting enough power to these facilities to produce so they can continue to provide service.  Countries are starting to build grids to get electricity to cities, an built plants/reactors to provide energy to make electricity.  Countries like China have found that their coal/natural gas supplies will not last forever, so they are beginning to get into nuclear.  All of this is happening just at a time where a large source of uranium is being pulled from the market.  Playing the uranium exploration and production companies is a good way to invest in this sector, but a more exact way to invest in uranium price appreciation, is to invest in uranium itself.  This poses a large problem, as uranium needs to be handled in a safe way, so storing a few hundred pounds in your garage is definitely out.  Although uranium in its most basic form does not give off alot of radiation, it can still make people sick, and should be treated like lead is.

    So finding a suitable way to invest in uranium for the average person is difficult.  Uranium miners DNN, CCJ, URRE, URZ, URG, UEC, FRG, CXZ, PALAF.PK, and SXRZF.PK will all work, but has more to do with how cheaply it is mined and how much can be produced then what uranium oxide is selling for.  When looking at the current ETF's that are available none directly track the physical price of the metal.  NUCL tracks the S&P Global Nuclear Energy Index which has its largest weighting in utilities at 42%.  Rising uranium prices would actually hurt utilities as it would cost more to produce the electricity.  The URA is much better as their largest holding is CCJ at 17%.  The second largest holding is Uranium One, then Paladin Energy, UEC, and DNN.  PKN has a large weighting in utilities 23.9%.  About half of this ETF is in materials.  NLR has about a 25% holding in utilities and 65% in materials.  I was unable to find an ETF that buys and holds the metal to provide the same price appreciation as would be seen as uranium increases in value, but I did find one stock.  Uranium Participation Corporation U.TO invests in uranium oxide and uranium hexafluoride with the goal of realizing price appreciation.  UPC was formed in 2005, and now has a market cap of 915 million.  Uranium Participation Corp. acts as a uranium holding company.  They will have at the least 85% of their assets in the commodity of uranium.  UPC at this time has no want of selling any of its uranium, but up to 15% of the commodity can be loaned to other organizations to garner interest until the company pays uranium plus interest to UPC.  Denison Mines (DNN) currently manages UPC and in return is paid commision, fees and a lump sum per year.  This acts as another revenue stream for DNN.  UPC states that although uranium prices can fluctuate much more than other commodities, they believe that the price of uranium is going higher.  Reasons for price appreciations are:1.  UXCO estimates that uranium demand will increase from 180 million pounds in 2007 to 212 million pounds by 2015 which is based on a conservative 2% growth rate.  2.  International Energy Outlook of 2007 stated they believe energy consumption will increase by 85% by 2030.3.  85% of world production of uranium is from seven total producers.  This can create large disrupsions in uranium supplies.  A good example of this is the water problems at Cameco's Cigar Lake facility.  4.  On average new production takes about 10-20 years to get to market.  This from inherent difficulties in mining associated with environmental problems.  Also, some of the newer production is coming countries in political strife.  5.  Some secondary sources are being removed from market.  Most importantly is teh 500 tonnes of HEU from dismantled Russian warheads over the past 20 years will be discontinued.  Some believe the Russians have decided not to renew because they currently use twice as much uranium in their country than the mine.  This source will help them meet the need of their  aggressive nuclear reactor program.  Also, Russia has been vocal about the pricing being paid for its high grade uranium due to the marked increase of uranium prices over the past two decades.  6. The Uranium Market Outlook in the 3rd quarter of 2010 states that by 2030 uranium demand could be as high as 425 million pounds of uranium oxide.  Median estimates are approximately 325 million pounds per year and low estimates of 250 million pounds.UPC currently has 7.25 million pounds of U3O8 at an average cost of $43.23/lb.  They also have 2.374 million pounds of uranium hexafluoride at an average cost of $152.06/KgU.  These stores of uranium could prove to be quite useful for miners like Cameco that often buy off of the spot market to cover obligations to customers.  When looking over the prices that UPC has paid for it uranium, much of it is worth a considerable amount more now then just a few months ago.  On May 21st of this year, U.TO was trading for $5.21/share.  They are now trading for $8.61.  They have earnings on Monday it will be interesting to see what they have to say.  We may find uranium stores are tighter than we previously thought. 

    Disclosure: I am long DNN, URG.
    Themes: URANIUM, ENERGY, MINERS, MATERIALS Stocks: CCJ, DNN, UEC, URRE, URZ, URG, URA, NLR, NUCL, PKN, PALAF, SXRZF
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Comments (2)
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  • What about Oxy. Occidental they r in the Cabernet Field in Dunn County N.D. It has Sweet Oil Can u Tell us about the Matthew Schmidt 144-97-35 well anything u can tell us about this well
    Thank You
    Bill
    15 Feb 2012, 02:15 PM Reply Like
  • Author’s reply » The only Matthew Schmidt well I have anything on is

     

    MATTHEW SCHMIDT 1-35-2H-143-97

     

    It has produced 110000 barrels of oil since 5 of 2010
    15 Feb 2012, 11:39 PM Reply Like
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