Uranium Heating Up

Jim Brown
 
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Back in 2007 the price of uranium soared to $136 per pound. There was a shortage of uranium and too few mines to produce it. Fast-forward a couple years and 27 new mines came online and the sudden extra supply pushed prices back down to the $30 range. Now the cycle is restarting.

Back in 2006-2007 there were only a handful of uranium miners. Cameco was the largest followed by BHP Billiton and some national firms from China and France. When the price of uranium rocketed over $100 it caused some serious interest in prospecting for the commodity. The demand is exploding, no pun intended.

More than 27 new mines in nine countries came online in the last ten years but uranium is still a scarce material. It takes 400 tons of uranium to start a new reactor. China alone has plans to build at least 60 new reactors before the end of this decade and more than 100 by 2025. That is 24,000 tons of uranium just to start them up. That is equivalent to half the world's current annual output and that is just to fuel China's new plants.

As of December 2009 there were 436 operating reactors worldwide. China is building 60 more, France 10 more and there are 30 under consideration in the USA. Many countries have nuclear plants on the drawing board or under construction. The World Nuclear Association expects by 2015 to have a new plant started up every five days. The International Atomic Energy Agency predicts that nuclear power plants could double by 2030.

The problem is where to get all the uranium necessary to feed these plants. Over the last decade the industry made up for the production shortfall by taking the uranium in decommissioned nuclear weapons from the U.S. and Russia and down blending it into fuel for plants. This option is almost completely used up as the supply of old weapons has finally been reduced to nearly zero.

Many countries have figured out that there is a shortage of uranium in our near future. They have begun to stockpile uranium for reactors that have not even been built yet. China just contracted with Cameco for 10,000 tons of yellowcake over the next ten years. According to existing public information China could buy as much as 5,000 tons this year alone. That is more than twice what they currently consume.

According to RBC Capital markets this sudden surge in demand could push uranium prices to about $55 per pound by next year. This is a 32% jump from today's price. Further speculative interest and stockpiling by other countries could push it to the $60-$80 range or double the current level.

China is always the most forward thinking country in terms of securing commodities for future use. They have done it in coal and oil and have the biggest budget for strategic acquisitions in the world. China is exploring for reserves on their own in Niger, Namibia, Zimbabwe and Mongolia. They are also buying stakes in existing mines and miners.

I believe we are right at the turning point for uranium demand and pricing. Adding a uranium miner to your portfolio today might not be a bad idea.

Jim Brown

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