Metals, including gold, silver and copper recently went through a correction — a normal and necessary part of any bull market.
But there’s one metal that never cooled down — uranium. It didn’t even flinch. Indeed, after rising fourfold since late 2003, uranium kept on trucking through June and July. It’s now trading at around $45.50 per pound.
I don’t expect it to stop there … it could gain another 20% by the end of the year. To put that into perspective, if gold made the same percentage move from its current level of $633, it would rocket to about $760!
So, since uranium is white-hot, uranium stocks must be going crazy, right? Not exactly. This is where the market is handing you a spectacular opportunity …
While the price of uranium didn’t pull back with gold and silver, the prices of most uranium stocks corrected sharply along with precious metals stocks. It was an example of an old Wall Street saying in action: “When the paddy wagon comes along, the good girls get taken downtown along with the bad.â€
As a result, many uranium stocks are trading at deep discounts to their former prices. But I don’t think these discounts are going to last. To me …
Uranium’s Outlook Is So
Bright, It Glows in the Dark
Right now, there’s just not enough energy to go around. The situation reminds me of 
Star Trek, when Captain Kirk would yell down to Scotty, “Give me more power!†And Scotty would reply: “I canna’ do it, Cap’n. She’s givin’ us all she’s got!â€
Conventional power generation is “giving us all she’s got,†but the world still needs more.
It’s certainly not going to get more from oil. As I told you in “Investing for Peak Oil,†we’re quickly running out of black gold.
What about coal plants? China is building about two a week. But as it’s quickly learning, coal power greatly increases greenhouse gases and global warming. If China doesn’t change how it uses power, its coal consumption and carbon dioxide emissions will triple by 2030.
Enter nuclear power. According to the NEI, every 1,000 megawatt reactor saves 7.9 million barrels of oil or 3.4 million tons of coal a year. It also eliminates 34,000 tons of polluting sulfur dioxide and 11,000 tons of nitrogen oxide.
The world is catching on. Last year, it consumed about 180 million tonnes of uranium oxide. The bad news: Mines only produced 90 million tonnes.
Stockpiles — including cold-war era nuclear warheads — have been making up the difference, but they’re running down fast. According to industry estimates, they could be completely gone in the next six years!
At the same time, nuke plants are gaining in popularity around the world …
China expects to build 30 new nuclear plants by 2020. That will increase its nuclear capacity from 6.6 gigawatts to 40 gigawatts. As the second-largest consumer of electricity, the country has no alternative — it’s choking to death on coal dust as its power grid tries to keep up with an economy that’s growing more than 10% a year.
India plans to build 31 nuclear plants by 2020. This will raise its nuclear generating capacity from 3 gigawatts to 20 gigawatts. Again, they have no choice. Right now, much of India only has power for half of each day.
South Korea depends on nuclear power for 40% of its electricity. But it’s planning to increase that to 60% by 2035. It’s building four reactors now and expects another four by 2017.
France currently gets a whopping 80% of its power from nuclear plants.
Britain’s anti-nuke orientation, once positively Churchillian in its steadfastness, seems to be decaying quickly. The country was going to shut down all but one of its 23 nuclear power plants by 2023. However, Industry secretary Alistair Darling recently said that nuclear power is vital for Britain’s future, and the government has cleared the way for new nuke plants.
Russia has put its Chernobyl atomic disaster behind it and pushed hard for nuclear power at the G8 summit this past weekend. It’s building four plants right now, but that’s just the start. The country plans to build 40 new nuclear reactors by 2030.
Canada is embarking on an $18 billion plan to upgrade existing nuclear plants and build new ones.
The U.S. stopped building atomic plants after Three-Mile Island. However, it’s now dusting off plans for new nuke plants. Remember, our country is the world’s biggest generator of nuclear power and the largest consumer of electricity.
All these new plants, and all this revived interest in nuclear power will mean only one thing — surging demand for uranium.
How to Make a
Pile of Nuclear Profits
It will take exploitation, exploration, and production of uranium resources to feed this ravenous global uranium demand. There are three basic types of uranium companies …
- Existing producers who can capitalize on surging uranium prices.
- Near-term producers who will be able to meet future demand. The beauty of these companies is they aren’t locked into old legacy contracts that were drawn up before the price of uranium quadrupled in a year.
- Explorers with longer-term projects waiting to be developed. These are the lottery tickets of the uranium world. But make no mistake, some of these lottery tickets will pay off in spades.
Some of them might also be gobbled up by the merger mania sweeping through the uranium sector. Here are just two recent examples:
- Canada’s Mega Uranium bought Australia’s Hindmarsh Resources earlier this year for AUS$20 million. Hindmarsh’s stock soared by about 64% in a month.
- Paladin Resources made an offer for fellow Aussie uranium miner Valhalla Uranium. The offer sent Valhalla’s stock shooting up as much as 35% in just two days.
Bottom line: Smart uranium players are jumping on the opportunity to buy these assets when they’re cheap.
Who’s next? I have a slew of small-cap ideas. And I’m positioning my Red-Hot Asian Tigers and Red-Hot Canadian Small-Caps subscribers to play this merger mania.
What are the alternatives?
Until recently, there were no uranium-specific mutual funds. But a new fund that is concentrating on investing in uranium and nuclear power opportunities launched recently. It’s called Geiger Counter Limited, trading on the London Stock Exchange (under the symbol GCL). Soon, I hope to see a similar fund traded in the U.S.
One other option: There is a large-cap uranium play that you can buy in the U.S. It’s Australian mega-miner BHP, which has a uranium operation. It’s a good stock with great fundamentals … sales went up 88% in the most recent quarter vs. a year earlier … earnings jumped 131.8% over the same period … and it trades at a reasonable 12.3 times trailing earnings. The stock should go higher along with metals prices.
Yours for trading profits,
Sean
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MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.
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