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ince the Fukushima accident on March 11, 2011 Uranium and Uranium stocks have fallen on hard times. With the current spot price hovering just above the $40/lb mark, Uranium has tumbled from highs of over $130/lb (see the chart below). It’s not a glamorous element like gold and platinum (after all no one proposes with a uranium ring), but it is a major contributor in energy, helping us generate over 14% of the world’s electricity. As an investment you would have lost your shirt investing in Uranium and Uranium stocks, but in 2013 there are very significant signs that show Uranium as an attractive investment. These signs include plans of building nuclear reactors all over the world, Japanese renewed faith in nuclear energy, a severe shortfall on the supply side, and the expiration of the Russian HEU deal in 2013.
We first must look at new nuclear plants that are in the works to be built over the next decade. According to Jeb Handwerger of Goldstocktrades.com, 64 Nuclear reactors are being built all over the world. A new reactor needs 3x the uranium that an operating plant needs. This will immediately increase demand, which in turn will drive price and subsequent supply. It is estimated that 82% of all the new reactors being built through 2020 will be constructed in only 4 countries, China, Russia, South Korea, and India. These are some of the most tightly controlled economies with some serious government monetary backing. In the case of China, analysts have been calling for the country to diversify out of its US debt by buying up resources that will help domestic production. For China to hold its strategic advantage over other developing countries, the ability to produce energy domestically is a major strategic advantage. These countries understand that new reactors need much more uranium, so look for them to start buying up assets and companies this year to avoid any subsequent price spikes.
Another major contributor to increased demand will come from Japan. After Fukushima, the country took the majority of its reactors offline supported by a national vote where 74% of people of Japan voted to become a nuclear free country. However the December 16th, 2012 Japanese election saw the ruling Democratic Party of Japan (DPJ) ousted by Shinzo Abe and the Liberal Democratic Party (LDP) who have long stated that a desire for increased nuclear power around the country. Public opinion seems to be easing as well, as a survey conducted earlier this month of Japanese mayors saw most supporting re-opening the power plants as long as the government could guarantee safety. Japan currently has 54 nuclear power plants with some operating in a limited capacity. With the LDP in power we can expect the re-commissioning of these plants over the next few years.
With increased demand coming from new plant construction in China and the plant re-opening in Japan, we are slated to see a swell in demand for uranium. So that begs the question: Is there enough current Uranium production to supply the upcoming demand for the needed element? The simple answer is no! At the current depressed uranium price, few mines are able to operate profitably. Around the world mines supply 144 million lbs of Uranium however the demand in 2011 was 166 million lbs. This number is expected to increase to 226 million pounds by 2020, and should reach 280 million pounds by 2030, according to The Australian. This significant increase in demand combined with the supply shortfall means that there will have to be more production of Uranium in the short and long term. In basic supply and demand economics, when demand is greater than supply (especially by almost 2 times as projected by 2030) the price must go up.
A final factor that needs to be considered when analyzing the uranium price is the Russian HEU agreement (also called the Megatons to Megawatts Program). I had to learn about this and you can too here. To summarize, Russia is required to decommission nuclear warheads from the Soviet Union days and convert the uranium into a low-enriched Uranium that can be used in nuclear reactors. This program has contributed on average 14% of the world’s supply of uranium, and 50% of the electricity produced by America’s nuclear power plants. The HEU agreement is set to end in December 2013, which further dampens future uranium supply and brightens the uranium price outlook.
There are many factors that contribute to my bullish outlook on uranium and uranium stocks this year., but it’s not all rosy. The largest risk to the future of uranium is government regulation, however as mentioned above, since the Fukushima accident in 2011 government approval of nuclear plants and power is reaching an all time high. Analysts are calling for highs up to over $60/lb by the end of 2013 and think that this could be the year for Uranium.
The companies to watch for in this space are the large producing companies as well as some of the mid-tier companies that have a resource but cannot mine it when the price is in the $40/lb region. A couple companies that I will be keeping a close eye on are, Camaco (CCO:TSX; CCJ:NYSE) (the world’s largest uranium supplier) which hit its 52 week low in mid-November and has been climbing since. A nice way to get exposure to uranium but avoid the risks associated with junior and producing companies is to invest in Uranium Participation Corp (U:TSX). This is the only physical uranium fund, so you are essentially investing in the fact that the uranium price should rise. A final company for those of you who want to take on more risk with junior companies is UR-Energy Inc. (URE:TSX). URE has a very attractive property in Wyoming called Lost Creek. Construction on the mine has just begun a couple months ago however there was a recent petition lead by a local conservation group to stop mine construction. When/if this is resolved I expect the company to make a nice run.
Author: Cory Fleck – exclusive to ResourceSpots.com
This article is not to be used as investment advice to buy or sell any stocks mentioned here within. Cory Fleck is not a registered investment advisory. He holds stocks in the follow companies mentioned in this article: none. There was no compensation received from any of the companies mentioned in the article.