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2 Uranium Stocks That Are Ripe For A Rebound

September 11, 2012 by  

2 Uranium Stocks That Are Ripe For A Rebound

A few months ago, there was a report that a Japanese town recovering from last year’s tsunami-inflicted Fukushima nuclear disaster is teaming up with Toshiba Corp. to build several solar electricity plants which, combined, would be Japan’s largest solar facility.

The coastal town of Minami Soma plans to install 100 megawatts of solar, which would be about 2 percent of the 4.7 gigawatts of capacity at the now idle Fukushima Daiichi nuclear station 16 miles to the south.

If you recall, a huge earthquake triggered an even bigger tsunami that laid waste to northeastern Japan, including three aging nuclear reactors. Parts of Minami Soma were in the no-go zone following the meltdowns.

Following the Fukushima disaster, Japan shut down all of its 54 nuclear power stations.

But the lesson here isn’t really about how Japan has seen the light (pardon the pun) and is going to replace all its nukes with solar, geothermal and wind.

No, the hidden news peg in all this is that most people have put the disaster behind them and now are getting back to business as usual.

Whether the Japanese restart their nukes is immaterial. Nuclear energy is a clean fuel of the future for developing nations around the world and in particular, China and India.

That means big things for uranium producers and even bigger things for the biggest uranium player, Cameco Corp. (CCJ).

Emerging Markets Bring Growth

U.S. investors have been far too focused on nuclear’s old reputation, when it took forever to build a plant and then you were never sure how well it was built. Things have changed considerably since those days.

But the U.S. utilities and regulators are still having a hard time finding common ground. There’s only one new reactor under construction; and nine are in advanced stages of planning.

In China, however, there are 27 reactors under construction and 50 additional reactors in advanced stages of planning.

India has 20 reactors in six power plants with at least seven in planning mode. Its goal is to triple its nuclear power from 3 percent to 9 percent of overall electricity generation capacity in the next 25 years. By 2020, India’s installed nuclear power generation capacity will increase to 20,000 MW from about 4,800 MW today.

The International Atomic Energy Agency’s most realistic estimate is that 90 new nuclear plants will enter service around the world by 2030. Ten new nuclear plants went online over the past two years.

And plants abroad cost 70 percent to 80 percent less than they do in the U.S. I was at a conference a few years ago and began talking to a guy who worked as a nuclear engineer for Southern Company and then started his own business.

He had consulted on some Chinese nukes and was telling me how amazing it was to watch them put up a plant. They hit their deadlines and had little red tape to deal with, which meant they got to focus on the work.

Simply put, the growth story for nuclear power — much like the growth story for oil and natural gas demand — is centered in the emerging markets.

Reactors Under Construction WorldwideSource: World Nuclear Association

Uranium Is Heating Up

It’s no surprise share prices of most uranium producers plummeted in the immediate wake of the Fukushima. Since then, the group for the most part has traded sideways; investors have remained on the sideline, awaiting greater clarity on the impact of the accident on global nuclear demand growth.

Many countries announced a pause in the construction of new reactors and/or the beginning of comprehensive safety audits last March, a process that took time to complete. But recent announcements from China, Japan, India and the U.K. have affirmed that nuclear power’s future remains bright. Germany’s and Switzerland’s decisions to phase out their nuclear power programs shouldn’t damage the industry’s growth prospects.

While the uranium price is lower than it was immediately prior to Fukushima, it’s important to remember that it is at a higher level than in mid-2010, which was only six months before Fukushima.

The main things keeping a brake on uranium prices now are the current supply-demand balance and some residual uncertainty regarding Japanese reactor restarts and the issuance of new reactor licenses in China, which were suspended after the Fukushima accident.

It looks increasingly likely that Japan will begin to restart reactors. Local opposition to reactor restarts was overcome earlier this summer, and the government appears to be getting closer to a restart decision.

In China, some nuclear regulators have come out publicly over the course of the past few months saying that they will begin to issue new reactor licenses again. And at the beginning of June, the Chinese cabinet reportedly reconfirmed the country’s commitment to its nuclear program.

The 800-Pound Gorilla

Camecois the largest pure-play miner of yellowcake and is a must-own for investors interested in profiting from rising demand for uranium.

On May 1, Cameco reported a 43 percent surge in first-quarter profit to $131.8 million. During the first quarter, the company sold 8.1 million pounds of uranium at an average realized price of $49.40 per pound. That compared with sales of 6.1 million pounds at an average realized price of $48.60 per pound in the first three months of 2011. The company’s sales rose 22 percent to $562.3 million.

And Cameco has a strategy to double its production by 2018. To accomplish that, there may be some acquisitions in the company’s future. With prices flat-lined until demand picks up and smaller miners getting stretched over the past year, this may be the perfect time to snap up productive properties and eliminate some of the competition simultaneously.

Also, Cameco has a series of major projects under way. The largest is the long-delayed Cigar Lake mine in Canada. The company expects the facility to produce about 1 million pounds annually from the mine by 2013. The mine’s annual output could hit 5.6 million pounds by the latter half of the decade.

Cameco is in prime position to fuel the next generation of nuclear reactors and score some big gains in the process; it’s a buy up to 27.

A Local Hero

A smaller, more leveraged play is Vancouver, Canada-based Uranium Energy Corp. (UEC). All its operations are in the U.S., and it hopes to gather a bigger share of the U.S. market, since 95 percent of U.S. uranium is imported.

What’s more, 20 percent of U.S. electricity comes from nuclear power and the 55 million pounds of uranium consumed each year in the U.S., but only 4 million pounds of uranium are produced each year domestically. The U.S. is more dependent on foreign uranium than it is on foreign oil.

The biggest problem has been that uranium prices are so low that there’s little opportunity for profit. Miners need prices around $80 a pound to expand production and grow profits, but spot uranium prices are about $50 a pound, which is reason enough for UEC’s lackluster performance up to now.

UEC uses a method called in-situ recovery, which is the lowest-cost method of extraction. As its extraction costs are lower, any up-move in prices will be leveraged in the company’s performance.

And two factors are working in the company’s favor: Domestic demand may rise simply for economic security reasons; and if that doesn’t happen, demand overseas will soon begin to make up for it. Emerging economies are building nukes like crazy — not only China and India but South Korea and oil-rich nations like Saudi Arabia and the United Arab Emirates, as well as Iran. As oil gets dearer, it makes more sense to sell it than to consume it, especially if there are more efficient alternatives.

Either way, UEC is a leveraged way to play the rebirth of nuclear energy globally.

And something seems to be happening, because the stock is up almost 15 percent this week on no news. When flat-lined stocks rally that much with no explanation, there’s something going on that the smart money knows and can’t or won’t talk about it. UEC is a speculative buy below 3.75.

GS Early

is editor of Liberty Investor Digest™ and managing director of Fresh Eyes Media, a media management and consulting firm that develops custom content and marketing solutions for financial businesses and publishers. Gregg has been a leader in the financial publishing business for two decades and has worked on content strategies with every major publisher in the industry, as well as organizations like CNBC, Morgan Keegan, Folio Investing and Moneyshow. He is an award-winning writer and editor and has built many of the top publications available to investors today. His specialties are emerging technologies (biotech, nanotech, robotics), defense and cybersecurity. He is a graduate of James Madison University.

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  • GALT

    yup…..clean fuel nuclear…..definitely a sane investment choice……let’s make it more
    interesting….anyone who wishes to purchase stock must also live within 10 miles of a
    nuclear facility…….and officers and board members must live on site?

    • MNIce

      That makes about as much sense as demanding that anyone who invests in an auto manufacturer must live next to a highway, or that those who invest in solar or wind power must live immediately downwind of the factory where the hazardous chemicals are used in production.

      Nuclear plants are safer neighbors than oil refineries. Check out the neighborhood evacuation rates. They also have a much better production safety rate than coal power (includes injury accidents per unit energy output associated with fuel production and illness caused by pollution).

      • RichE

        GALT’s not known for making sense.

      • GALT

        Actually, though the concept is one of somewhat relative hazard depending on the materials involved, I have no objection…….the workers are exposed already, and in the case of vehicles the damage is fairly widespread…….now the Koch Brothers mansion
        in the middle of an oil refinery, PRICELESS!

        Nuclear, however, is in a class by itself……

        The Doomsday Machine
        Today, there are over one hundred nuclear reactors operating in our backyards, from Indian Point in New York to Diablo Canyon in California. Proponents claim that nuclear power is the only viable alternative to fossil fuels, and due to rising energy consumption and the looming threat of global warming, they are pushing for an even greater investment. Here, energy economist Andrew McKillop and social scientist Martin Cohen argue that the nuclear power dream being sold to us is pure fantasy. Debunking the multilayered myth that nuclear energy is cheap, clean, and safe, they demonstrate how landscapes are ravaged in search of the elusive yellowcake to fuel the reactors, and how energy companies and politicians rarely discuss the true costs of nuclear power plants – from the subsidies that build the infrastructure to the unspoken guarantee that the public will pick up the cleanup cost in the event of a meltdown, which can easily top $100 billion dollars.

        For more information, watch an exclusive book trailer for The Doomsday Machine here: http://www.youtube.com/watch?v=V2Y4cso-7g0
        CHERNOBYL – THE FINAL SOLUTION

        The world’s civil nuclear power system is a giant-sized Chernobyl-type dirty bomb offering no energy security or freedom from oil. Quantities of plutonium produced worldwide by civil reactors are already about 22 tons a year – enough for more than 2000 Hiroshima-sized bombs every year. By 2020 this could rise to 3500 per year. Oil saving due to the atom is negligible.

        In a fast growing number of countries both the size and complexity of nuclear installations is also rising fast. Reactor building costs and prices are exploding, with the inflation rate in 2010 close to 25 percent per year. Only a few types of reactor, especially underground or ‘hardened’ military reactors can resist a wide-body airplane crashing on them. Their costs are astronomic as shown by the European EPR, whose proud boast is that it could also resist a wide-body plane crash – at fantastic cost. But almost no reactor of any kind will resist entirely conventional ballistic missiles, conventional artillery shells, conventional anti-tank and anti-building munitions, and infantry launched or drone launched missiles. The reality is inescapable. All are totally vulnerable to operator error and IT safety system failures. Every single one of them is a potential Doomsday Machine.

        Reactors will also not resist worst-case seismic damage, as the Earth’s tectonic systems shift to a new long-term period of cooling climate and intensified volcanic activity, driving increased numbers of major seismic events. Due to the world’s uranium supply and fuel reprocessing system being totally fossil energy dependent, the vaunted claim of “Low Carbon Nuclear” is more of a marketing myth than the Friendly Atom.

      • eddie47d

        But Galt you didn’t offer RichE a napkin to wipe off that egg on his face. You also bring up a good point about building nuclear power plants underground to avoid being blown up by enemy weapon systems. That is exactly what Iran is trying to do and mainly because Israel and the USA consistently threaten them. Now I don’t believe nuke waste can be safely disposed of long term but I do look at nuclear power to be a viable alternative if affordable. Smaller and more efficient plants can be built where the dangers can be minimal. Coal presents an even greater danger to our health and the well being of the environment than nuclear power. Because there is so much coal in the USA I doubt if we’ll ever stop using it. In Colorado we are reducing our coal usage and we now have 17% wind energy. So some transformation is possible.

      • GALT

        RichE is not worth my time…….in any sense.

        • RichE

          I’m actually hurt GALT.

  • boyscout

    Like it or not, I don’t see how nuclear energy is NOT going to proliferate. Great investment tip for anyone with resources left to employ. One can only hope for further R&D that will bring us closer to resolving the waste clean up/storage issues, a more efficient fusion reactor, and much more precise safety controls.
    An odd comparison of the clean up with the national debt can be made at this point, as it is another legacy we are leaving for future generations. For, like the debt, it continues to grow and at present management seems out of control and therefor postponed or mismanaged.

    • retiredengineer

      Thorium fueled reactors have reached experimental instllation stage. Thorium is more plentiful than fissionable uranium, the half life of the spent fuel is shorter than uranium’s and the fuel is intrinsicly safer. There is a lot of websites dealing with the topic. There are of course disadvantages, too.

      • boyscout

        Thanks for the tip retiredengineer. Now I have another interest to search. LOL

  • RichE

    Is it possible to un-refine nuclear waste? It seems our current practice is to clean out the litter box, put in a plastic bag and bury it in our neighbor’s backyard. I’d buy stock in a company that could unrefined the stuff.

    • retiredengineer

      Breeder reactors do just that. They generate electricity while “un-refine” spent fuel. This technology is applied large scale in France. The USA has abandoned it in the 1970-s.

      • RichE

        Ahhhh, I’m confused. Breeder reactors seem to be the answer. Why aren’t we using them?

        From Wiki: http://en.wikipedia.org/wiki/Breeder_reactor
        Breeder reactors could in principle extract almost all of the energy contained in uranium or thorium, decreasing fuel requirements by nearly two orders of magnitude compared to traditional once-through light water reactors, which extract less than 1% of the energy. This could greatly dampen concern about fuel supply or energy used in mining. In fact, with seawater uranium extraction, there would be enough fuel for breeder reactors to satisfy our energy needs for as long as the current relationship between the sun and Earth persists, about 5 billion years at the current energy consumption rate (thus making nuclear energy as sustainable in fuel availability terms as solar or wind renewable energy).[2]

    • MNIce

      The great difficulty with fuel reprocessing is the economics. It’s expensive to build and operate a facility capable of handling spent fuel, especially if it’s fresh out of the reactor. The fission products in spent fuel are more radioactive than the original fuel and is chemically more complex, so the reprocessing plant must be designed to deal with that.

      A breeder reactor may be part of the equation – it is designed to convert non-fissionable uranium-238 into fissionable plutonium 239. Most uranium is U-238, only a small fraction (about 1-2%) is fissionable U-235. The breeder reaction occurs in a standard power reactor, but those are not designed for maximum plutonium production as is a purpose-built breeder. Reprocessing is required to obtain the benefit of a breeder reactor.

      Spent nuclear fuel actually still has a substantial amount of fissionable material, but not enough to sustain a chain reaction – it’s diluted by the fission products. Reprocessing extracts the remaining fissionable atoms and concentrates them into new fuel pellets.

      Development of a cheap and safe reprocessing method would be a substantial boon – whoever does it deserves an enormous fortune.

  • http://PersonalLibertyDigest Harry Gray III

    I have had a little in UEC for over a year. My investment is down and no sign of a yield, but the company reports progress. I am thinking the same as the author and am holding with a ‘wait and see’ approach. HCG

  • http://wildeyguns.com The Christian American

    Germany has already built a solar energy building or tower that reports say is can produce as much energy as a dozen nuclear plants. I haven’t heard if its efficient or not but it could be interesting. After the bombs were dropped on Nagasaki and Hiroshima, supposedly the land would be useless for 100 years. Have you seen those cities now? Personally I don’t know how dangerous in the long run, whatever that is, Japan’s nuclear problem is. I do know the merchants of fear take every chance they get to create fear in us so we’ll come running to DC for aid and comfort. How many patents on better ways to create energy are bought up and squashed we’ll never know. I have a number of patents. and when I’ve gone to the patent office I’ve observed college kids doing nothing but reading patents and pasing what they find to their employers. Their sitting there with their brown bags all day long.

  • chuckb

    we are wasting our time and resources investing in batteries, solar and wind, they are impractical, “stone age” it’s time we get back to earth and nuclear power, the left wing education system planted the fear of nuclear power and we have paid the price for all these years living under the umbrella of fear. the oil companies had the most to lose so they subsidized the hippies traveling the country with their anti-nuke message, the majority of them were so spaced out they didn’t know what they were complaining about.
    the reason nuclear power plants are so expensive is the environmental lobby and the epa. the regulations were places for one reason, not safety so much as to make these plants too expensive to build. could it be the oil companies didn’t want to lose their hold on the energy market. in california they backed the opposition to building new n plants, could it be because of the huge oil contracts they had with pacific gas & electric?
    .

    • RichE

      Damn hippies! We ought to use them instead of fossil fuels and anyone else that disagrees.

      Why is the truth so hard to find
      Always masked,
      Always behind,
      Something,
      Something,
      But what thing?

    • eddie47d

      Blame the hippies! Blame the hippies ! Now the oil companies “subsidized them”!? How far will some of you stretch things? Nukes are dangerous and oil spills are dangerous. That is easy to comprehend for most and those sounding the alarm have valid reasoning. When the dangers subside and corrections are made then production will resume. Which with oil there is plenty of drilling going on. When those reasonably priced and safer nuclear plants are presented in a well outlined debate then maybe they will also be accepted. I will accept nuclear power but who will verify that all those foreign built ones are being build safely? We have been sold that bill of goods before.

      • RichE

        Sounds like scissors would be dangerous in your hands. Don’t run with the scissors little man.

      • eddie47d

        Put the fairy dust away RichE. It’s plugged your inner workings!

        • RichE

          Still beating on pots and pans Little Man?

  • E. Blake

    Too little too late!!!
    1.The California Central Valley provides nearly 1/3 of the food of the North America. Radiation levels there are well over background, in fact, well over the 300% of background which the California State Police define as a radiation hazard. How far over? No one really knows. Or if they do know, they are covering-up the truth.
    2.Fuchu city of Tokyo will start serving Fukushima milk for school lunch:
    http://fukushima-diary.com/2012/09/fuchu-city-of-tokyo-will-start-serving-fukushima-milk-for-school-lunch/

  • Rob

    “green socialist energy” will only be viable when the private sector(what is left of it)
    makes it viable. Drill BABY DRILL!!!!!!!

    • RichE

      After the government pays the private sector to do the R&D and didn’t the government build the roads?

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