Uranium Prices are Rebounding
Nuclear Power is Making a Comeback
It’s been a long while now since there was any good news to report on uranium, but the slow tide looks like it’s finally starting to turn.
After Japan’s Fukushima reactor meltdown in 2011, the price of uranium took a nose dive. Japan closed its 50 remaining reactors, Germany shut down most of its operations, the market was soon flooded, and that’s when prices spiraled out of control.
Japan's plants aren’t shut down permanently, but until some of the reactors do start to come back online and things turn around, we're going to continue to see an oversupply of uranium.
But I’m betting things will get better sooner than later. It’s time for a new chapter. I’m calling this one “The Rebound.”
After a dismal 2011, the spot price of uranium went nowhere but down. And down. And it kept going down, dropping as low as $34.50 two months ago. It had been at $51 at the beginning of the summer, and it stood tall back in 2007, when it reached as high as $138 per pound.
Today, the spot price of uranium is at an eight year low.
That tells me it’s time for the heroes of this story to step up. Power utilities need to boost orders, miners need to ramp up operations, acquisitions need to be made, and us investors have to be there as it all unfolds.
And this is already starting to happen as new reactors make their way onto the scene. Plans are emerging in the U.S., China, and other countries for additional developments.
Even as Germany plans to phase out nuclear power by 2022, new and existing plants should be able to stabilize prices, and we should start to see them pick back up in 2014.
Long-term contracts aren’t reflecting the current prices, typically gunning for the mid-$50 range, so even businesses aren’t looking at current prices realistically. That will help boost prices once again.
A U.S.-Russia agreement that reprocesses uranium from nuclear weapons to supply U.S. reactors will also run out this year.
These stockpiles have supplied roughly 9,720 tons of U3O8 (its tradable form) every year, according to Bloomberg, about 13 percent of global reactor requirements.
And if we look at one company in particular, we can start to see the upswing. Areva SA (Paris: AREVA), the second biggest producer of the metal, is banking on a big comeback.
While the company has had to cut costs amid the uranium tumble – planning cuts upwards of 1 billion euros between 2012 and 2015 – it's beginning to see things turn up.
Last year, according to Bloomberg, Areva’s yellowcake uranium reached a record 9,760 tons, including 3,661 tons in a joint venture with Kazakhstan and 3,065 tons at Areva’s Somair mine in Niger. Similar results should follow this year.
All the while, global demand continues to increase. Experts predict demand will rise close to 50 percent by 2023.
68 reactors are currently under construction around the globe, mostly in China and Russia.
Areva is also developing a brand new mine, the Imouraren mine in Niger, where it should first produce in 2015.
So we’re already seeing signs of change. Japan, which up until 2011 had some of the largest nuclear reactors, will begin putting them back in action eventually; the same goes for the U.S. and other countries. This will be especially true as countries aim to reduce emissions.
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As I mentioned before, long-term contracts aren’t reflecting the spot price market. The Lost Creek project in Wyoming has utility companies signing on with producers for the next three to five years at a higher price. The spot price will increase from this.
Ur-Energy Inc. (NYSE: URG), which runs Lost Creek, expects uranium production to be between 2.5 million and 3 million pounds in 2013 and 4 to 5 million pounds in 2014, according to trib.com.
This is a significant increase from Wyoming's past production, and it’s only expected to increase from there – to as much as 10 million pounds per year.
And acquisitions are starting to take place. Denison Mines Corp (NYSE: DNN) is in talks to buy Rockgate Capital Corp (TSE: RGT) at low levels right now. Energy Fuels (TSE: EFR) just bought Strathmore for a bigger slice of the U.S. market.
And look for Uranerz Energy (NYSEMKT: URZ) and Rio Tinto (NYSE: RIO) to make moves shortly.
If we’re seeing this much activity during an eight year low, just imagine what could happen if uranium starts moving again.
The Pay Off
You’ve got to take advantage of this rebound before it takes off. There’s probably still some time but don't wait too long.
Stakes right now are horrendous. Areva has declined over 60 percent since Fukushima. Its closest competitor and the world’s third-largest uranium producer, Canadian-based Cameco Corp (NYSE: CCJ), has declined 50 percent.
But these two companies have a combined venture at Canada’s Cigar Lake mine that is due to open next year and should produce well into the future.
Uranium is a true test of shareholder patience, and in order to reap the rewards, we’re going to have to be prepared to exercise that patience.
Now is as good a time as any.
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