Why I Continue To Be Bullish On The Uranium Market (URA, NLR, URRE, DNN, CCJ, URZ, UEC)
Ian Wyatt: The fear around nuclear energy is palpable. The catastrophic events in Japan on March 11 have put a damper on the momentum of what was fast becoming a nuclear renaissance. For the past several years, nuclear proponents promoted nuclear energy as a clean, efficient, reliable and safe alternative to dirty fossil fuels – and the world agreed.
A wave of new orders from BRIC countries as well developed nations created a nuclear renaissance. Then over the past nine months, the price of uranium began to climb. Dormant since the 2008 recession, uranium rose from US $42 per pound to a 52 week high of US $72.65 in February.
The spot price of uranium fell over 25 percent in the days following the earthquake and subsequent tsunami in Japan. Value investors helped the troubled commodity regain ground buy buying the plunge. But the question is still on everyone’s minds: what’s going to happen from this point forward?
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On Monday, Germany announced it will shut down all of its nuclear reactors by 2022. The new policy is a complete reversal to the proposal to enhance Germany’s nuclear energy established by the government only seven months prior.
The German Chancellor, Angela Merkel, stated to reporters on Monday, “Our energy system has to be fundamentally changed, and can be fundamentally changed…We want the electricity of the future to be safer and, at the same time, reliable and economical.”
The decision by the German government to end its dependence on nuclear energy has once again riled the uranium market.
I believe the German decision is just creating short-term noise in the uranium market. Once this noise, created by the Japanese catastrophe and Germany’s recent decision, is gone, uranium stocks will once again reflect earnings – and while sales to reactors in Japan and Germany may slump, the world’s other 436 reactors will be as hungry as ever for uranium fuel.
Because as people are recovering from the Japan disaster – and possibly hating nuclear power more than ever – the supply and demand fundamentals of uranium have not changed in a significant way.
***The bottom line is that even in the wake of the Japanese catastrophe, uranium’s supply crunch lives on.
If we look out over the next eight to 10 years, which is the amount of time it takes a nuclear power plant to become fully operational, the market is still about 400 million pounds short of projected demand.
The top 10 producers, which make up almost 90 percent of the uranium market, only produced 110 million pounds of uranium in 2010. In other words, uranium producers need to produce nearly four times the amount just to meet estimated new demand. The new supply will have to come from somewhere, or the price of the existing supply will need to increase to clear the market.
For uranium miners the market is red hot. For investors, shares of the best uranium mining stocks could represent the best energy investment opportunity in decades.
The World Nuclear Association’s (WNA) chart below sums up why now is the time to get into uranium related investments. The world will be using more uranium for years to come – and many great investment opportunities appear in the midst of a supply crunch.
The supply crunch easily has the potential to become even more strained with 63 percent (note this is not the same as top ten producers mentioned above) of the current uranium production coming from only 10 mines worldwide. Additionally, the global supply of mined uranium is susceptible to supply shocks if one mine floods, or stops production for other reasons.
***The most direct way to profit from the coming growth in nuclear energy and the shortage in uranium is to buy shares in the most productive uranium miners in the world.
As I stated in this letter over a month ago, the tragedy in Japan, and subsequent fear in the market, has presented us with the opportunity to invest in several well-managed and fundamentally sound uranium companies. For well-informed investors with the patience to tolerate volatility for a couple of months, I think this could potentially be the single best opportunity to buy and hold uranium stocks.
I will continue to track the nuclear/uranium story closely and report back to you here in Small Cap Investor Daily. Feel free to send in questions, or companies, that you would like me to discuss. My address is editorial@smallcapinvestor.com.
As you know, I am long-term bullish on uranium fundamentals, and suggest that you join me for what should be a prosperous ride.
Tickers: Global X Uranium ETF (NYSE:URA), Market Vectors Uranium+Nuclear Enrgy ETF (NYSE:NLR), Uranium Resources, Inc. (NASDAQ:URRE), Denison Mines Corp. (AMEX:DNN), Cameco Corp. (NYSE:CCJ), Uranerz Energy Corp. (AMEX:URZ), Uranium Energy Corp. (AMEX:UEC).
Written By Ian Wyatt From Wyatt Investment Research
Wyatt Investment Research is led by founder Ian Wyatt, who serves as Publisher and Chief Investment Strategist. Our team also includes a group of talented research analysts and editors who aim to uncover great investments and present those investment ideas to our growing group of loyal subscribers.
Ian Wyatt is an active investor, a well-regarded investment expert and an Internet entrepreneur. He is the Chief Investment Strategist at Wyatt Investment Research, and plays a leading role in each of the company’s investment newsletters and trading services. As a well-regarded market expert, Ian has written for Marketwatch, Zacks Investment Research, Seeking Alpha, Yahoo! Finance and The Burlington Free Press. He has been interviewed or quoted in articles in well-known publications including AOL Finance Blogging Stocks, Kiplinger’s Personal Finance Magazine, Barron Magazine, Barrons.com, Forbes.com, The Dick Davis Digest, The Dick Davis Income Digest, The Wall Street Transcript, TheStockAdvisors.com, Money Show Digest, The New Jersey Star Ledger, The Wisconsin State Journal and The Seattle Times.
I think the bottom line of Gabriel’s comments is that its not backed up by engineering reality.
Photovoltaic cells require a massive amount of energy to produce, and unless you happen to be living in the desert (in which case your AC and data-centre cooling bills are going to be rather large also…) give a very poor return on a massive surface area. Try applying that to much of Europe – where for the 4 months or so you -really- need energy, you have very little sunlight – and the scale of the problem becomes even more apparent..
The Chinese are not producing photovoltaic cells for their own industries, they are producing it for the green lobby in the West. Germany’s production capabilities will fall, as will their vunerability to Russian oil and gas supplies increase. The Chinese are actually producing new types of nuclear reactors – currently using Uranium and perhaps in future Thorium.
Expect German exports to become less cost effective as the cost of manufacturing rises, but thats about the only impact.
Fossil fuels or Nuclear fission (or in our pipe-dreams nuclear fusion!) are the only practical alternatives for large scale power production for the vast bulk of the earth’s population (unless you happen to live near hydro or geo-thermal).
Boi-fuels are a misnomer – and if you’d read the economic analysis of them you’d know they are little more than a boon-doggle for farmers, are almost energy neutral, and have simply forced up food costs massively…
The real problem is producing a predictable industrial scale power source when required is the challenge for any alternative energy source…and so far all of them fail badly on the scale, cost, timeliness or energy-return models…and no amount of ‘green paint’ will change that fact..
I think the bottom line is how well alternative technologies are ready to replace nuclear power, in case countries like Germany decide to go through that and other countries follow. Chinese photovoltaic producers are taking advantage of that. Given the low energy output per acre for solar arrays, the issue of neighborhood-wide panels that allow some off-grid operation and even “return” excess power to the grid may compensate that and make solar energy a more attractive alternative.
That is not all, since bio-fuel from agricultural waste (rather than fuel crops) and even sewage processing are becoming widely discussed. All these issues have to be discussed on their own as well, to determine the future of nuclear power: A plain discussion of supply vs. demand is just not enough.