As I was flying into JFK on my way back from a uranium mine in Labrador recently, I peered down at the cityscape and was struck by just how brightly this country lights up the night sky.
I’m not talking just about metropolitan centers. From Boston to New York, there’s a solid stretch of millions of homes, with nearly every window glowing.
I’ll bet very few residents think about how or why the lights turn on. They’d be surprised to learn that there’s almost a one-in-five chance that a nuclear generator is providing their electricity.
America gets 19.3% of its electricity from 104 commercial nuclear generating plants with a capacity of 97,400 megawatts. We could be getting a lot more, but our nuclear program stalled after the Three-Mile Island and Chernobyl disasters.
Now nuclear energy is ready to make a comeback in a big way. I attribute this to what I call the “Three E’s†…
- Economics: Nuclear power is getting cheaper and safer.
- Environment: Global warming is a major problem.
- Energy security: Taking control of our own destiny.
Given our dependence on the turbulent Middle East and Persian Gulf for energy, I think the last point takes on the greatest urgency …
Uranium Can Get Us Out
From Under OPEC’s Thumb
Right now, there’s little doubt that OPEC has the U.S. by the throat when it comes to energy. The simple reason: Our domestic oil production has been declining for decades — we now produce nearly 40% less than we did in 1970, and America’s domestic production now supplies only 40% of our total needs.
Meanwhile, in the next 20 years, according to the Energy Information Administration, U.S demand for oil is expected to jump 30% (and natural gas by more than 50%).
Unfortunately, we are “addicted to oil,†as President Bush says, and we’ll do just about anything to keep the “Central Bank of Oil†— Saudi Arabia — on our good side.
For example, we’ll ignore that 15 of the September 11 hijackers came from Saudi Arabia, or that, for decades the Saudi royal family has been funding the kind of extremism that came back to sucker-punch us that day.
We really don’t have a lot of options on oil — not with imports (crude oil and products) accounting for 60% of the total oil used in July. Mind you, a fifth came from the Persian Gulf, and that proportion is growing.
That’s why nuclear power could be the key to our energy security. Indeed, the U.S. is one of seven countries that, combined, control approximately 90% of the world’s known uranium resources.
This has countries like Iran scared to death. Not one of the seven major uranium-producing countries is in the Persian Gulf. With Peak Oil looming, you can see why some members of OPEC might find that a little intimidating.
America Can Flex Its
Nuclear-Energy Muscles
Wouldn’t it be nice if we produced more oil than we consumed? Yes, but that’s not likely to happen anytime soon. In contrast, when it comes to nuclear power, we’re talking a whole new ballgame — one where the U.S. has a very realistic chance of hitting the ball out of the park.
Some facts:
- The U.S. was once the world’s largest uranium producer, until Three-Mile Island derailed the nuclear industry in this country.
- The U.S. has about 7% of the world’s uranium reserves, but only 2.5% of the world’s uranium production. Second-quarter 2006 uranium oxide production in the U.S. was 894,268 pounds — up 42% from a year earlier.
- In the first half of 2006, U.S. production of uranium concentrate totaled 1.8 million pounds, up 36% from the first half of 2005, and the highest since 2000.
It’s no surprise that U.S. uranium production is increasing …
- There are 442 operational nuclear power reactors in the world. So demand for uranium fuel is enormous.
- Total global uranium consumption was estimated at 176.3 million pounds in 2005. Only 47% was supplied directly from mining. The rest was from stockpiles, which are dwindling — fast!
- 130 new nuclear power plants are either being built or are in the planning stages. Some analysts put the number of planned reactors as high as 160.
In other words, we have both a raging bull market in uranium prices … and a chronic, long-term shortage of uranium. Uranium mine production simply cannot keep up with demand. Stockpiles are dwindling. And this widening gap between supply and demand is expected to get worse for years to come.
Plus, here’s the really interesting thing: Despite the big bull market surge in uranium prices over the past couple years, on a historical basis, uranium hasn’t come anywhere near its old peak in inflation-adjusted terms.
In 1978, uranium topped out at $43.40 per pound, which, in today’s dollars, is around $145. Compare that to uranium’s current price of $53.50 per pound, and you’ll see that it would have to nearly triple to match its old highs!
The climb could be steep: According to an estimate from CIBC World Markets, the price of uranium will likely hit $70 per pound by the end of 2007 — a 31% rise from present prices.
To give you some perspective, an equivalent rise in the price of gold would put the yellow metal at nearly $800 per ounce … and an equivalent rise in crude oil would take its price to $85 a barrel.
Look for Undervalued Stocks
Right in Your Own Backyard
Now for the best news: The uranium bull market is global in scope but you don’t have to travel to the far corners of the Earth to find the opportunities. If you want to look for the next big uranium investment, you can start right here at home.
When many investors want to put money to work in uranium, they buy Cameco (NYSE: CCJ). The Saskatchewan-based company is the world’s biggest uranium producer. Its sales increased 45.5% in the most recent quarter compared to the year-earlier period, while net income soared 358% at the same time — thanks to surging uranium prices.
Cameco is a fine company, and if you want to buy one of the big names in the business, it’s a good choice. But I don’t think that’s where the real value … or real potential … really is. I believe the real value is in smaller companies that haven’t been fully discovered by Wall Street or Main Street investors yet.
That’s why I’ve spent months researching stocks that will make the most of the coming uranium boom. Some operate here and some overseas, but you can buy all of them on U.S. exchanges.
What am I looking for in small-cap miners?
- Miners that will be bringing a uranium resource into production in the next couple years.
- Companies that have acquired properties that were actively being explored or worked in the last uranium boom that ended in the ’70s. Millions of dollars worth of drilling work and data have been collected on some of these properties.
- Stocks that are likely buyout or merger candidates. By my count, there have been about 15 mergers and acquisitions in the uranium field in the last year. A takeover can send a stock soaring.
- Big proven deposits, or big deposits that are inferred and likely to become proven.
- Low political risk. I’m not eager to throw money at a uranium mine in a country with political troubles — all other things being equal, I’d rather buy a uranium mine in Canada than Peru.
- Good management. It’s probably the single most important thing to look for in uranium companies. Good managers have plenty of experience and are successful at bringing projects online. They’ll keep costs down, manage resources effectively, seek out new resources (and not pay too much for them), know the difference between good debt and bad debt, and seek out strategic alliances.
In my forthcoming uranium report, I have a short list of companies that meet the above criteria. One has rich holdings in both uranium and gold. Another is run by geologists who are buying up properties that were explored during the last uranium boom. A third is bringing a mine online next year, but the stock is trading at a significant discount to the value of the company’s resources.
I could go on and on. But what I really want to impress upon you is that this may be the biggest, baddest bull market of them all!
There are a number of forces that are combining to drive uranium to $70 … $80 … $100 and beyond. This is a bull market that is going to last for years … perhaps decades … and now’s the time to put your money to work.
As I’ve just shown you, you can’t just throw a dart and find a winner in uranium. There will be winners … losers … and some that will simply knock the cover off the ball.
Yours for trading profits,
Sean
P.S. If you’re really interested in uranium, you should read the uranium report I’m sending to my Red-Hot Canadian Small-Caps and Red-Hot Asian Tigers subscribers. Available on October 3, it will be chock-full of analysis of the uranium markets and include my favorite uranium picks.
I’ll be selling this report — which includes three updates — for $199. But if you contact us at 1-800-400-6916, and mention my name, you can reserve a copy before it comes off the press. I’ll sell it to you for the low pre-publication price of $99. That’s right — 50% off! And I’ll email you a PDF copy so you can jump on these red-hot recommendations right away.
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