Energy Diversification

Uranium on the Rise

Although I believe in the long term promise of nuclear power - especially in China - it continues to amaze me that the only so-called "analysis" that anyone wants to do for uranium producers and explorers consists of drawing lines and talking about "uptrends".

On the one hand, we have very valid arguments that China will need (and in my view, already has much more massive plans than we have been informed of) to build nuclear plants. However, even in regulatory-lite China, these plants will not be online for at least a decade. And even if China were to double the build-rate of nuclear reactors that the world achieved during the building boom in the 70s-80s, its going to be a long, long time before this drives uranium demand.

Now of course investors are right to try to position themselves for this future demand increase. But the reality is (the analysis that is always skipped) is that there is a lot of production coming on line, from the very companies mentioned here - Uranium One, Denison, etc.

Over the next few years, we are looking at an OVER supply issue, not a shortage. Even with Uranium One's sulfuric acid problems in Kazakhstan, they still expect massive production ramp ups.

There is a contradiction when we talk about the growth prospects for all the companies - based on their production expectations - but then we don't address the broad supply/demand situation for uranium. If these guys meet their targets, we will have an oversupply for years. This is a long time to ride out from an investment perspective.

Moreover, no one is analyzing the true production cost of uranium. And you're going to need to, because even if you don't believe this is a problem, the anti-nuclear side is coming out with a host of well-reasoned arguments that large-scale mining of somewhat lower-grade uranium is going to cost a lot more -- and may even have a negative EROIE! This message will impact the market because the popular press will repeat it, reinforcing its own anti-nuclear bias for a few more years.

Finally -- if you truly believe the nuclear story, why not play the engineering firms that will be booking business from this buildout -- SGR, MDR, FLR, FWLT and of course CEI.PA (AREVA)?

Perhaps this is because the majority of uranium stock traders are basically inept analysts feverishly drawing "trend lines" to try to justify their way out of the hole they are in for chasing uranium equities to unreasonable heights last Spring?