A Great Year For Uranium Investors, Here’s Why…
I woke up to a roaring explosion sound on Saturday.
As I leapt from bed scanning my open window, I thought of two real scenarios: 1) a large plane crashed within ½ mile of my house; 2) an unthinkable nuclear-type explosion just hit Baltimore.
My girlfriend and I looked at each other trying to figure out what had happened, seconds later our 120lb dog was shaking scared in our bed. “What was that!?”
Turns out it was the loudest, most absurdly-long, rogue, grumble of thunder I’ve ever heard.
It was timely, too. I’ve never had a real thought of a nuclear explosion like I did that morning — and on a day when President Obama was landing in Seoul, South Korea for a nuclear summit the timing was uncanny.
So yeah, with Obama reiterating his want for a “nuclear weapon free world,” I’m all for nuclear weapon safety. But as your editor I’d have to admit that — heh, even through a bad thunderstorm — there’s a more profitable story to be told.
Behind all of the nuke headlines — accompanied by pictures of Obama with binoculars looking across the South Korean border to North Korea — you may have missed what’s really happening in the nuclear industry.
Not only were the top world leaders meeting in Seoul to discuss the future of nuclear weapons, many of the top nuclear companies and uranium producers were there too. And from what I’m seeing, our recent write-up of the nuclear “re-renaissance” and our next investment opportunity is spot on.
“When we now look at the global situation [for nuclear energy], we think it’s going to pick up very soon,” says Luc Oursel, CEO France’s nuclear energy giant, Areva.
From what I’m seeing across the industry there’s more similar sentiment. Indeed, since last year’s nuclear disaster, the industry is starting to pick up speed. This according to Bloomberg:
- India last week overrode six months of local protests to approve the start of its Kudankulam plant.
- In February, the U.S. gave the green light to build the nation’s first reactor in 30 years.
- China is “very likely” to resume approval of new nuclear projects this year, said Sun Qin, president of China National Nuclear Corp.
And if you’re one of those impressive readers that can stomach a whole issue of Daily Resource Hunter, following through to our news section, you would have seen an ever-important blurb yesterday…
Despite the tragic setbacks from the Japanese Fukushima disaster, the world nuclear industry is set to play an even bigger role in the energy market of the future.
Across the world 61 nuclear reactors are under construction, and 162 other reactors are being planned, Bloomberg reports. Of note, the planned reactors alone would have a greater capacity than the total output from the existing 435 nuclear power facilities which currently produce 13.8% of the world’s energy.
Reactors are being planned, built, serviced and used. That’s without question.
This progress means one thing: the need for more uranium or “yellowcake” to fuel new and current reactors.
And if you’ll remember back to our latest write-up on this nuclear opportunity one thing stands out: supply of uranium is set to tighten up, as soon as 2013. That’s when the “Megatons-to-Megawatts” deal between the U.S. and Russia — to supply decommissioned warheads for energy use — is set to end.
“After a decade of falling mine production to 1993” the World Nuclear Association reports, “output of uranium has generally risen since then and now meets 78% of demand for power generation.” (Emphasis added.)
So you see, without the “Megatons-to-Megawatts” program or any other uranium stockpiles mining capacity can only supply 78% of uranium demand.
This is an impending and immediate windfall for uranium producers and their shares. And with uranium prices on the low end of their 5-year price range there’s much reason to give this sector a hard look. Uranium prices could easily be 50% higher by this time next year — and surely this will pay off for producers.
From here I see three big ways for us to play it.
There are two solid nuclear/uranium based ETFs — the Market Vectors Nuclear Energy ETF (NYSE: NLR) and the Global X Uranium ETF (NYSE: URA). Both offer you a broad-based way to play the next upswing in uranium prices.
The Market Vectors Nuclear Energy (NLR) ETF gives you a lower-risk sector wide exposure to uranium producers and major nuclear energy companies. So far in the first quarter of 2012 the ETF is sporting a 14% gain — an uptrend that I see continuing for the next 12 months.
The more uranium-specific Global X Uranium (URA) ETF is up even more, 21% on the year. The key difference here is that this ETF holds more uranium producers and less nuclear energy producers. This may give this ETF a slight edge in an environment with higher uranium prices — so look for this fast-from-the-gate ETF to continue moving higher as prices rise.
The biggest private producer is Cameco Corp. (NYSE: CCJ), which accounts for 16% of the world’s uranium production.
Cameco is a solid play if you’d like to add pure uranium production to your portfolio. And if prices jump like I think they will Cameco shares could head back to their 2011 highs (which would mean almost a double in price.) That’s a low-risk bet I’d be willing to take in a heartbeat.
If you need another vote of confidence for Cameco, just take a look at their steady, increasing dividend payout. Back in 2007 when uranium prices were sky-high ($125/lb) Cameco was paying a modest 20 cent yearly dividend.
Today, the dividend stands at 40 cents, or 1.76% — nothing to sniff at in today’s economy.
But it’s even more impressive to know that throughout the uranium free-fall of 2011, following Japan’s nuclear disaster, Cameco held its dividend strong at 40 cents (where it still stands today.) That tells me that management sees a strong future ahead.
A strong future is in the cards for the nuclear industry.
With most shares far below their 2011 highs, now’s a great time to look at this industry. All said, we’ve got a front row seat to the next upswing in nuclear’s re-renaissance and now’s the time to take advantage.
Keep your boots muddy,
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