Time to invest in Uranium?

I recently talked with Uranium expert, Amir Adnani, on my podcast

We’ve recently seen a massive swing of momentum in the Uranium markets as prices are finally coming off their lows. In fact, Uranium is trading at prices not seen in years.

I’ve been keeping my eye on this sector for several years now. So for those who are looking for reasons to invest in the market – you’ve come to the right place.

And if you’re thinking you might be late to the party, as you’ll see, Uranium’s rebound is still in the very early stages.

What follows are the main points as to why the “perfect storm” for investing in Uranium is on its way.

Politics

There is a large fundamental shift at the political level for nuclear energy and uranium stocks happening right now.

Let’s think about the shift taking place in the United States, which is the Trump administration coming in.

For eight years, under Obama, renewables got a lot more favorable policies and incentives from the government.

The Republicans though are historically big supporters of nuclear power.

And many of the people that are now in this administration or are part of the transition team are going to be very pro-nuclear and very much pro-mining to a great extent because of domestic supply and security of supply issues.

I think for the first time in eight years, there’s actually a big political shift that is going to bring a new dawn for nuclear power in America.

A Bottom?

Uranium prices seem to have bottomed out at $17.80 a pound on November 30, 2016 – so not that long ago.

Today, it stands at about $22 per pound, which is a good move from those low levels.

Six Years Down

A commodity or industry going down for 6 straight years…

It almost never happens. You would have to go all the way back to the depression to find an example of it.

Investor Gains

When you look at investor sentiment, people are like,”Wow, once these things turn you get 100, 200, 300% gains.”

All this means is that once investors start looking uranium’s way, you will see a lot of money piling in.

Production

The United States currently imports 95% of its uranium. What does that mean for US uranium stocks?

Here’s some interesting facts:

First of all, in terms of known uranium resources, the United States would be probably amongst the top five in the world.

Uranium is an abundant mineral in the earth’s crust and no other country on earth has been explored for uranium as extensively as the United States has been since the 1960s.

The data that many companies in the US have results in enormous intellectual capital on where new projects could be.

Number two, 30 years ago, the United States was producing over 40 million pounds of uranium annually with the world’s biggest uranium producer.

According to the Department of Energy, there were over 20 thousand jobs related to uranium exploration and mining.

Today, the U.S. production in uranium is less than four million pounds, 10% of what it used to be and there’s less than 800 jobs in the business of uranium exploration and mining in the U.S.

Third, around 100 of the reactors in America are generating about 20% of the power in the U.S., but because of the little production domestically, those reactors in the U.S. are importing 95% of their uranium requirements.

Not from Canada but from Kazakhstan, Uzbekistan, in some cases Russia.

I think this incoming administration, especially looking at some of the people at the highest level involved with it, understand that there’s enormous opportunity for uranium to be a source of economic development.

It would create good paying jobs…

bring about security…

and be able to produce the uranium for our hundred nuclear reactors, rather than having to import 95% of it.

Supply

A couple of weeks ago, Kazakhstan, the largest producer of Uranium announced that they’re cutting back production by 10%.

Kazakhstan represents 40% of global production.

Let me put that in perspective…

Kazakhstan announcing a 10% cutback in uranium has more impact on its market than if Saudi Arabia announced a 10% cut back on oil.

That’s because Saudi Arabia is only 12% of the world’s oil market.

Kazakhstan’s a much bigger weight in the uranium market, in terms of share of production.

Ok, but enough about supply, what about demand?

Demand

The reality is that the demand side of uranium is very strong.

The number of reactors under construction worldwide is at a record level: 70.
And the total nuclear expansion worldwide over the next 10 years, is somewhere over $700 billion.

The expansion is real and it’s happening.

Why?

Pollution & Clean energy

There was an interesting video recently where someone put a GoPro camera on a balcony in Beijing from dawn to dusk, showing the effect of the pollution in China.

Air quality is becoming the number one issue in China right now. It will lead to policies to develop sustainable sources of power that also provide cleaner air.

This is happening in the biggest cities in India and China.

Remember, nuclear power is the biggest source of electricity generation that’s CO2 emission free.

Any modern economy that wants to have a healthcare system, transportation system, clean air, needs to have base load power.

And base load power is what nuclear generates 24/7. Basically whether it rains or shines, nuclear power is there to generate electricity that’s CO2 emission free.

Fukishima

The big disappointment, has been Japan. People would’ve expected that by now, 2017, there would be at least 20 to 25 reactors back online in Japan. But there have only been a handful.

We’re basically coming into almost six years since Fukushima, the nuclear accident in Japan, happened.

Fukishima was really what started this prolonged bear market in uranium and it’s taken much longer than expected but it is still coming back.

But, there is still a very pro-nuclear government in charge in Japan.

There is an overall need for nuclear to come back, because Japan can’t keep bringing in LNG (liquid natural gas) and burning coal because they’ll end up having many of the same air quality problems that China has.

The reality is, we could wake up tomorrow and Japan has approved two or three more reactors.

There’s something like 17 applications under review there for existing reactors that are built, all of which were shut down, because of what happened at Fukushima six years ago. They’ve had six years to review and make sure that the safety and everything they wanted to review has been reviewed.

Approved reactors would result in the oversupply in the market of uranium to disappear very quickly, leading to a supply imbalance and basically a supply deficit.
That’s how things are shaping up right now.

The fundamental demand based on reactors implies that there’s around a billion pounds of uranium that needs to be contracted, that hasn’t even been accounted for.

When you look at the supply and demand fundamentals, supply from mining activity is about 140 million pounds a year. Demand’s about 180 million pounds a year.
There’s already a supply deficit.

Demand is gapping higher because of all these reactors that are being built. Supply is simply not catching up because the uranium price has underperformed like we just covered.

The current uranium price is at $22 a pound which is below all in costs of mining uranium.

In fact, UX Consulting, which is an industry research group, estimates that there isn’t a single uranium mine in the world that can make money at $22 a pound.

It’s not nearly high enough for existing mines to make money. All the studies that are out there show the incentive price to bring new uranium mines on line is $75 per pound, and we’re nowhere near that.

There definitely is a supply crunch coming, which is going to cause the price to move higher.

I think the stage is set. I’d make the call and say that we’re going to seriously see in the next four years an increase in domestic mining of uranium in the U.S.

And an increase in uranium stock prices as well.

Good investing,

Frank Curzio

PS – I cover uranium, commodoties and the markets in general twice a week on my podcast. If you have any questions you would like me to address, you can ask me on my blog and I may get to it on the show.

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