Leaking radioactive material from the Fukushima I Nuclear Power Plant has poisoned the entire global uranium market.
Every nuclear- and uranium-related asset on the market has suffered drastic devaluations.
The price of uranium oxide (U3O8) — the most commonly-traded physical form of the nuclear fuel — fell some 32% from $74 to nearly $50/pound in the spot market immediately following Tōhoku earthquake.
Since that time, however, uranium prices have recovered a little bit. But the price of U3O8 remains 24% lower than it was right before the Fukushima disaster.
Uranium stocks have fared no better.
Companies involved in all aspects of the uranium industry — from exploration to production and processing — have also suffered serious market losses. In the past six weeks alone:
- Cameco (NYSE: CCJ) has fallen 37%
- Denison Mines (AMEX: DNN) is down 44%
- Uranerz Energy (AMEX: URZ) dropped 36%
- Uranium One (TSX: UUU) has lost 39%
- USEC (NYSE: USU) is off 33%
- Uranium Resources (NASDAQ: URRE) has slumped 38%
- Ur-Energy (AMEX: URG) fell 42%
For a broader look, the Global X Uranium ETF (NYSE: URA) — which tracks 23 of the largest uranium companies — plummeted 31% on the day of the earthquake and is still some 28% below pre-crisis levels.
Fearful investors have hurried to sell off their uranium assets, fearing the Fukushima disaster will force governments to tighten industry restrictions or worse, abandon their pursuit of nuclear power as an alternative energy source all together.
But the knee-jerk reaction in the uranium market has been grossly overdone.
You see, uranium has only been a publicly-traded commodity for only a few years…
In May 2007, the NYMEX began trading uranium futures in monthly contracts. This introduced a much higher degree of speculation into the uranium market as trading became available to investors outside of the mining industry.
And it was these very emotional speculators who oversold the uranium market following the Fukushima disaster.
But it’s only a matter of time until investors snap back to reality and the uranium market begins to rapidly recover.
It’s at this point that investors recognize the truth: The Fukushima disaster does not fundamentally alter the global demand for uranium oxide.
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The Nuclear Renaissance Will Continue to Power Forward
There are still over 440 nuclear power plants around the world that will continue demanding the energy fuel. Each year, these plants require approximately 79,000 tonnes of U3O8; but current mine production is only able to supply 60,000 tonnes of U3O8 annually.
The near 20,000-tonne supply deficit has been covered by secondary sources, including stockpiled uranium held by governments and utilities. But it’s well-known that many civil uranium stockpiles — including those from the once-massive stockpiles of ex-Soviet warheads — have been largely depleted.
And with over 50 new nuclear power plants under construction right now (and 200 more planned in spite of the Fukushima disaster), global demand for uranium will soon begin to greatly exceed available supplies.
There’s no doubt in my mind that nuclear industry will soon rapidly recover.
You know as well as I do that people have very short memories. Call to mind the following recent examples:
- Massey Energy (NYSE: MEE) didn’t stop mining coal after a massive explosion killed 29 miners at the company’s Upper Big Branch in April 2010.
- Chile only briefly halted mine production following a cave-in that left 33 miners trapped 2,000 feet vertically underground at the Copiapo copper/gold mine in August.
- British Petroleum (NYSE: BP) didn’t stop producing oil from the Gulf of Mexico after the oil spill last summer.
And those are just recent examples that are specific to natural resource industry. The Fukushima disaster is the same sort of situation.
Global nuclear energy interests will spearhead cleanup efforts in Japan and continue to promote new technologies. Governments will mandate new safety inspections, and they’ll write laws to include more frequent safety reviews and stricter standards for new nuclear power plants.
These moves should help alleviate most of the mainstream fears and quiet any loud, uninformed voices…
Then the industry can go back to business as usual.
China has already announced it will resume nuclear plans in just a few months. Here’s the latest from MarketWatch:
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China’s Nuclear Plans Could Resume by Summer The central government will assess the report and decide if safety improvements are needed, though Chinese experts believe Beijing will resume its nuclear-power ambitions, perhaps with some minor changes, the China Daily reported. The report cited former industry regulator and Nuclear Power Technology Corp’s senior official Lin Chengge as saying the pace and scale of China’s building will be adjusted, but dramatic changes are unlikely. |
The Chinese government has laid plans to increase the country’s nuclear capacity from the current 10 gigawatts (GwE) to 80 GwE in the next nine years. And the country is clearly moving its nuclear sector forward as it needs to, despite the Fukushima disaster.
Besides, it’s foolish to think that other world governments, major financial institutions, and corporations (all of which have billions tied up in the nuclear industry) are not going to let the nuclear sector fall without a decent fight…
There’s just too much money at stake.
The Diagnosis is Worse than the Ailment
There’s no doubt that the radiation leaking from Fukushima has created serious risks.
But the hard truth is, there is no current form of energy production that is without risk: Mining for coal is dangerous, oil rigs and pipelines can explode, and hydroelectric dams can be breached.
In the end, the market’s overreaction to the Fukushima disaster may be worse than the accident itself if it delays the nuclear renaissance.
With all the wars, uprisings, and general violence in the region, the need to reduce our dependence on Middle Eastern oil has never been greater. With oil prices rising past $120 and $130 per barrel, uranium investments will once again be seen as a hedge against the Middle East…
And today’s investors will be rewarded from a power rebound in the market as the majority of the heavy selling seems to be drying up.
Remember, it’s still expected there will be some 700 nuclear reactors operating worldwide within the next few years. These reactors will nearly double the demand for global uranium supplies.
If you can think ahead a bit, it’s not difficult to see how panic in the uranium market right now is making for an incredible buying opportunity.
Fear has created a frenzy in the uranium market; we’ve seen investors irrationally sell off their assets without considering market fundamentals or intrinsic value. And everything we know from history tells us that the market will eventually recover to come back stronger than ever.
It’s a no-brainer. And all investors need to do now is step up to the plate and take a swing at a slow, easy pitch.
Right this very second, the uranium market is panicking. As you know, uranium companies have seen their market valuations nearly cut in half!
There’s still a lot of fear sloshing around in the market. But this sell-off has naturally created an unprecedented opportunity for us as investors.
That’s why for the past three weeks, I’ve been scrambling to put together a new report…
My #1 Uranium Stock for 2011
A veteran geologist recently told me about a rapidly developing uranium district in Argentina’s Rio Negro Province, where property was being snapped up by major names in the mining industry.
Experts recently discovered this region is geologically similar to other regions known to host world-class uranium deposits. That means there could be billions of dollars in untapped uranium reserves waiting to be discovered…
And since the whole story has been kept such a secret, a small handful of companies have staked most of the prime exploration land.
In fact one small exploration company was able to get its hands on a massive 1.2 million acres of prime uranium property. This 25-cent stock was worth over $1.00 before the Fukushima disaster; once the fanaticism dies down, I expect share prices to strongly rebound.
That’s why, for the past three weeks, I’ve raced to put together a new video report that details this small uranium exploration company. In this video, I give you the whole story — including more details on the Argentinean uranium region and exactly why I’m so excited about this opportunity.
The tragedy in Japan and subsequent fear in the market have presented us with an incredible opportunity to take a position in the uranium market.
The Wall Street investment houses and financial institutions are still under pressure not to own uranium assets; but growth prospects for nuclear power continue to remain strong, as do the prospects for its yellow cake fuel.
The uranium market will survive the Fukushima catastrophe. And once the fear and emotion settle down, I expect uranium prices to rebound from their current lows to their pre-Japan crisis highs of over $70 per pound.
Sooner or later, the money that was taken out of uranium stocks will be put back in.
And that makes right now one of the single best times to invest in uranium.
There are plenty of great opportunities in the market now for investors to buy uranium stocks. But some are better than others…
Be sure to check out my #1 uranium stock of 2011.
Good Investing,
Luke Burgess
Editor, Wealth Daily
Investment Director, Hard Money Millionaire and Underground Profits
