Uranium has been on fire. The spot price is up to $70 from $50 just three months ago.
Look at this little run…
Small uranium companies are highly leveraged to the spot price of uranium.
This means that when the spot price of uranium goes up, the share price of uranium companies goes up a lot more.
This is due to the fact that most costs associated with mining uranium remain fixed, but the cash flow and margins of these small companies grow exponentially.
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All about demand
New reactors in planning stages and those currently being built are driving demand. This bounce in uranium is not a hedge fund driven speculation; it is very real.
The number of reactors that are in operation, and the number of reactors that are being planned, built, and proposed continues to go up. This is a consistent higher re-rating of uranium use.
If you only look at the big three — China, Russia, and India — these countries account for 50% of new reactors being built.
China has 13 nuclear reactors up and running. They have 27 reactors under construction and 50 in the planning stages. Their 12th Five-Year plan gives top priorities to nuclear power, and aims to have 188 reactors by 2020. That would still equal only 7% of their total energy needs.
According to Uraniumseek.com, a longtime uranium industry site, this would “increase the country’s uranium use from its current annual 8 million pounds (Mlb.) to about 45–50 Mlb., which is roughly equal to what the U.S. uses today.”
But China isn’t the only player in this game…
Russia has been aggressive in buying up uranium companies from Cape Town to Vancouver to Ulaanbaatar.
And through a back-door deal, Russia now owns 20% of U.S. production in Texas and Wyoming. They aim to be the world’s largest producer within three years.
India, France, South Korea, and Japan are also ramping up their game.
Even the U.S. with its dismal energy policy is expanding nuclear power.
President Obama in his State of the Union put an emphasis on retrofitting coal fired plants to nuclear power or natural gas.
Cold War legacy
New reactors need new supply.
After the global economic crisis of 2008, many hedge funds got hit with margin calls. The spot price of uranium fell from $140 to $40 a pound.
Last year at this time, the uranium market was dead. No one wanted to own the sector.
As in all resource plays, when Wall Street doesn’t want a commodity, they don’t lend to miners. Production drops off and supplies become constrained.
Over the last six months, the supply/demand situation has changed to favor producers. It is now a seller’s market. You don’t build a multi-billion dollar nuclear power plant and have it sit idle because of high uranium prices. No, you lock in multi-year supplies.
Over the past decade, some of this supply has come from a U.S./Russian agreement called the Megatons to Megawatts program. This turned old nuclear warheads or highly enriched uranium into 500 tonnes of low enriched uranium.
This deal will expire in 2013. Russia has stated that they will not renew.
Over the next ten years, production will not be able to keep up with the surge in demand…
Over the past year, I’ve made my readers a lot of money by getting into Mongolia before anyone else.
Mongolia is one of the last under-explored resource-rich countries on earth. Over the last year, the Mongolia Top 30 Index was up 178% — the best performing market in the world. It also has the second highest GDP growth and the second highest gain in its currency.
My Mongolian stocks are up 204% on average for 2010… One coal stock just jumped another 30% today.
And there remains plenty of upside in oil, coal, and uranium as the rest of the world jumps on the bandwagon I’ve been covering for almost two years.
I’ve recently put out a new report detailing the opportunities in Mongolia and uranium in particular.
Russia is attempting to take over/buy out a small Canadian company from one of the largest proven mines still around. It is uncertain how the legal ramifications of this battle will work out…
But given the amount of uranium being fought over, there is plenty of upside to both sides.
All the Best,
Christian DeHaemer
Editor, Energy & Capital
