Uranium prices boom, time to invest
Prices have soared since June of last year.
Tyuyamunite is a rare uranium mineral that is named for the type locality from where it was first described, Tyuya Muyun, Ferghana, Uzbekistan. Guest blogger Joshua M. Brown writes that he is bullish on the uranium trade for 2011.
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Joshua has been managing money for high net worth clients, charitable foundations, corporations and retirement plans for more than a decade.
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OK, now that the children are gone, we can continue.
Last night on Fast Money, I mentioned Cameco (CCJ) for the Final Trade segment. It's a fairly big name but many of my friends on The Street pinged me to say they'd never heard of it.
I'm going to give you some insight into why I've gotten extremely bullish on the Uranium Trade for 2011. Please keep in mind that any opinions expressed here are subject to change without notice and that I'm not your advisor or broker - I am simply giving you some background on a theme I'm very excited about.
Before I talk stocks, I want to give you some background on the supply/demand picture for uranium itself, because the setup here is delicious. We'll let Barron's Roundtable legend Felix Zulauf do the talking first, this excerpt comes from his 2011 outlook in which uranium played a starring role:
My next recommendation is in energy, because the rise of emerging economies also leads to rising energy demand. Electricity demand probably will double in emerging markets in the next 20 years. I would buy uranium. It is used to power nuclear plants, and it is used for medical diagnoses and research. There are 441 nuclear reactors operating in the world. They require 185 million ounces of uranium per year. There are 331 proposals to build new reactors. Fifty-eight new reactors are under construction, up from 52 a year ago, and 148 reactors are planned, including 110 that will come onstream in the next 10 years. Twenty reactors will be shut down. The demand side looks solid for many years.
Uranium production is growing, but slowly. Annual production is 47,000 tons. It meets only 60% of demand; the rest is met from utility stockpiles or decommissioned nuclear weapons. Production will increase over time, but it could take 10 years or more until it is sufficient to meet demand.
Uranium prices have soared to the $68 per pound level on the recognition of a few things...
1. China is poised to become the biggest nuclear power nation in the world, taking out about a third of the world's uranium supply this year. India is expected to be very close behind.
2. Most of the major suppliers of uranium went out of business or disappeared in the 90's and 00's. This sets up remaining miners in a similar position as the steel companies found themselves in at the middle of the last decade - poised to see explosive demand growth for whatever they could put out.
3. Uranium still has a long way to go price-wise versus many other commodities that are at or near all-time highs right now. UXC spot prices hit 138 (double the current price) in 2007.
4. For years, uranium demand has been sated by a combination of mining and the purchase of HEU atomic material from old Russian nukes. That supply source is petering out just as traditional production costs are rising rapidly.
For these reasons, spot uranium prices are up something like 70% since June of last year.
Now here's the fun part:
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