Kristjan Velbri's  Instablog

In the previous article, I gave an overview of the current situation in the uranium market and why I think it's headed for a new, long term, bull run. Now is the time to take a look at some specific stocks. Uranium, like any other energy source, is in a long term bull market and the investment opportunities presented below are for investors, not traders. That is also the reason why I am not going to give any technicals on the stocks.

As my broker has limited my stock transaction to a relatively few countries, of which Australia and Canada are not a part of, I have limited my field of research to companies listed on the US markets.

Cameco

Cameco (CCJ), the world's largest uranium supplier is engaged in exploration, development, mining, refining, conversion and fabrication of uranium for sale as nuclear fuel in Canada and internationally, accounting for 15% of world production. They are backed by about 500 million pounds of proven and probable reserves and existing resources. They are very active in exploring new mines and are also monitoring developments in Australia, where a new government is more supprotive of uranium mining and nuclear energy. The Fuel Services segment also manufactures fuel bundles used in Candu reactors, as well as participates in uranium exploration and production, and fuel fabrication of the Candu nuclear fuel cycle. The Electricity segment involves in the generation and sale of nuclear electricity,

Its revenue has almost tripled since 2004, the growth of net income has been slower, though. In 2008, Cameco's revenue increased to $2.4 billion, while its net income slid 11%. It's no secret that 2008 was a tough year. Cameco has decided to take advantage of that - in Q1 2009, it bought additional reserves to be sold at a later date, for profit.

Down the road, we will realize additional revenue and earnings as we deliver the purchased material to our customers, Cameco Chief Executive Jerry Grandey said.

Speaking at the Reuters Global Mining and Steel Summit in New York, Cameco's CEO also had some optimistic words about the future, that is, optimistic for investors in the uranium mining segment.

I think the financial crisis is clearly impacting the ability of every supplier to raise capital /.../
When you see project cancellations, you see expansion derail, you see some projects that will just go slower. That is just simply taking away future supply and sowing the seeds of the next spike in the uranium price.

Cameco's share price has come down a long way from its top but it has also more than doubled from its bottom. Given the long term bull market for uranium, I think Cameco still has a lot of potential.

USEC

USEC (USU) is the U.S. government's executive agent for the Megatons to Megawatts program, a 20-year, $8 billion, commercially funded nuclear nonproliferation initiative of the U.S. and Russian governments. This means that USEC provides around 50% of the total nuclear fuel used in US reactors! As of December 12th, 2008, USEC has recycled 352 metric tons of HEU into 10,214 metric tons of LEU, which, according to the agreement, means there is still 148 metric tons of HEU left to recycle, enough to provide USEC with another 4 years of uranium.

The company is also working on a 'next generation' enrichment plant called the American Centrifuge Plant, the technology of which was developed by the US DOE. To finance the new plant, USEC has ceased paying out dividends in 2005. All in all, USEC provides enriched uranium for 150 reactors worldwide, which makes it a uranium industry heavyweight (there are just 439 commercial reactors on this tiny planet). In addition, USEC Inc. provides nuclear energy solutions and services, including the design, fabrication, and implementation of spent nuclear fuel technologies; nuclear materials transportation; and nuclear fuel cycle consulting services.

On the financial side, USEC is doing pretty well. It's revenue has been going up steadily for years now, although it comes as no surprise that 2008 was a weak year for them as well with a 17% drop in revenue and a 49% drop in net income. It's share performance has been very erratic over the last year, which is not really that bad as it offers swing traders a chance to make a fast profit. Investors could also benefit by entering once the share price has dipped (again).

Others

Besides Cameco and USEC, there are many smaller uranium companies listed on the US markets but I see no reason why anyone should invest in them as they are very risky and more often than not, are still in exploration stage. As a long term investor, I would like to see a company that already has a product and a viable business strategy.

For investors who would like to diversify, there is the option of buying nuclear ETFs:

• PowerShares Global Nuclear Energy (PKN)
• iShares S&P Global Nuclear Energy Index (NUCL)
• Market Vectors Nuclear Energy ETF (NLR)
   

For those who are interested in the uranium mining industry and would like to buy themselves in for the long term, I suggest you make yourself familiar with the basics of how uranium is mined, milled, refined and reprocessed. There are many good places to start, one which is the IAEA website, but you might also want to take a look at the uranium miners' websites.

As I said above, I am not going to give you any technical advice, but even if you're buying yourself in for the long term, you might want to take a look at the technical yourself to determine the best entry point.

Disclosure: Long Cameco