The U.S. government says it will sell off part of its strategic stockpile of 135 million pounds of uranium, and that plan has some uranium producers howling like a bunch of rabid coyotes.
Apparently, the producers are blinded by their own greed, worried that the sale will put pressure on uranium prices and hurt their profits.
Now, I agree that the U.S. shouldn’t sell off its stockpiles. However, my opinion is based on something other than prices. More on that in a moment. First, here’s why the producers shouldn’t worry …
Sales of Government Uranium Won’t
Stop the White-Hot Metal’s Rocket Ride
Sure, bringing a new mine online is expensive — especially a uranium mine. But the producers shouldn’t complain.
After all, the Department of Energy (DOE) is proposing to sell just 5.5 million pounds of uranium a year on the spot market. That’s a drop in the proverbial bucket when the market is running a mined uranium shortage of 42 million pounds a year!
The Uranium Producers of America have proposed that the DOE limit its annual sales to 2.6 million pounds in 2007-2009, 3.9 million pounds in 2010-2013, and 5.3 million pounds in 2014 to 2016. Plus, they want the DOE to sell uranium through long-term contracts, not the spot market. They figure that will have less of an impact on uranium prices (and their profits).
Look, I have nothing against anyone making an honest buck … or many, many bucks. But do the math on the uranium supply/demand squeeze and you’ll see that producers are going to make plenty of money no matter what the government does.
First off, all the uranium projects I know of were proposed when uranium was under $40 per pound. Now it’s at $63 per pound. Would those projects really get dropped if uranium goes back to $55 … or even $50? No way!
And look at the fundamental forces powering prices …
- There are 442 operational nuclear power reactors in the world. On top of that, 28 more are being built, 62 are on order or planned, and another 161 have been proposed. A typical 1-gigawatt nuclear reactor requires around 200 metric tonnes of natural uranium per year. So demand for uranium fuel is already enormous, and it’s only going to zoom higher!
- Total global uranium consumption hit 176.3 million pounds in 2005 and should easily top 180 million pounds this year.
- 53% of current uranium supplies come from old Russian nuclear warheads, sold under the Megatons to Megawatts plan signed after the Cold War. But the Russians are steaming over what they see as a raw deal, and the clock is ticking on the current agreement. I don’t expect it to be renewed.
- Meanwhile, the recent Cameco mine disaster shows just how easily new sources of production can get derailed. Cameco was scheduled to bring a new uranium mine online in 2008. But the aptly named Cigar Lake Mine flooded, and now it won’t be ready until 2009 (some say even later).
Keep in mind, Cigar Lake was supposed to produce seven million pounds of uranium in its first year and 18 million pounds annually after that. In 2008, uranium demand was already expected to exceed supply by 25 million pounds. With Cigar Lake out of commission, that gap will be 32 million pounds — an increase of 30%. In other words, the government’s proposed sale isn’t even enough to make up for delayed production from Cigar Lake.
At its peak, Cigar Lake was supposed to provide 17% of the world’s uranium supply. One analyst said that “Losing Cigar Lake in the uranium world is like the oil market having to deal with the loss of Saudi Arabia!â€
The Cigar Lake fiasco just sharpens the long-term trends that have pushed the price of uranium up 85% in the past year. The metal is trading five times higher than just three years ago.
You can see why the producers shouldn’t gripe about prices. However, I still think the government should reconsider selling any of its uranium because …
The Atomic Clock Is Ticking
For the United States
You think there’s a supply/demand squeeze going on now? All those new plants I mentioned are being built overseas – in India, China, Russia, and Japan. The U.S. hasn’t joined the game yet.
Heck, the U.S. hasn’t built a new nuclear plant since 1973. And while we can somewhat extend the operating life of our current plants, the U.S. must get back in the game and start building more nuclear plants in a hurry.
After all, 103 operating nuclear plants currently provide us with 20% of our electricity. And electricity demand is only increasing. There are 17 nuclear power plants planned or proposed in the U.S. right now, but we’ll need many more.
The alternative is building more coal plants. But here’s an interesting factoid — coal plants put out 100 times more radiation than working nuclear plants! Coal plants also spew tons of ash that pollutes the environment permanently. Your average coal plant’s pollution kills about 100 people a year.
And then there’s the issue of the greenhouse gases emitted by coal plants. Don’t get me started on that … or global warming … or the fact that China is building a new coal-fired power plant every week.
The Age of Triple-Digit
Uranium Prices Is Near
I think the U.S. needs to save its nuclear stockpile for a time when we have a real crisis — after uranium soars past $100 per pound. At that point, the government might want to stabilize the market.
You think that sounds far-fetched? Hardly! Even with uranium at $100 per pound, electricity from the new third-generation nuclear power plants will likely be less expensive than electricity from comparable gas-fired plants.
Indeed, I’d say $100 isn’t high enough! With or without the sale of some of the government uranium stockpiles, I would not be surprised to see uranium prices double from current levels by 2010. That would mean uranium trading at more than $120 per pound, which would keep uranium stocks glowing for a long, long time.
What’s an investor to do? Well, you may want to take a look at Uranium Participation Corp., a Canadian fund that tracks uranium. The symbol up in Canada on the Toronto Exchange is U. In the U.S., the symbol is URPTF on the Pink Sheets. (On Yahoo, that would be URPTF.PK.)
Of course, to make the most of uranium’s wild ride, you might also be wise to consider individual uranium companies. Here’s what I look for when I’m picking small-cap uranium 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 already 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. This is 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 reasonably-priced new resources, know the difference between good and bad debt, and seek out strategic alliances.
If you don’t feel like sifting through all the companies out there on your own, you should check out my report, “The Golden Age of Uranium.†In it, I dish up a bunch of stocks that I believe 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.
Anyone who already bought “The Golden Age of Uranium†knows how well these companies have been doing. Naturally, I can’t possibly know what each person did in their portfolios or what price they received if they bought. But, if they purchased all seven of my recommendations on the first day the report came out, according to my calculations they should be sitting on open gains of up to $7,000 (before commissions). Some positions are up 60% … 70% … even 80%!
And you know what? This is just the tip of the iceberg. No one has a crystal ball, so losses are always possible and past performance is no guarantee of the future, but I believe these stocks have only just begun to make their moves.
Now the bad news: If you’re interested in my report, you’ll have to hurry. I promised three follow-ups to anyone who bought “The Golden Age of Uranium,†and the first one will go out next month. So I’ve decided to stop selling the report by January 15.
If you’re ready to step up to the plate for what should be the most profitable time in uranium’s history, you can find out more by calling us at 1-800-400-6916 and we’ll send you a PDF copy so you can jump on these red-hot recommendations right away.
Yours for trading profits,
Sean
P.S. Remember, anyone who buys “The Golden Age of Uranium†will be getting three follow-ups — the first one is coming next month. If you want to get in on one of the most incredible investments around — don’t delay!
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