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Investing Ideas Investing in Uranium: A Roller Coaster Ride
Investing Ideas Investing in Uranium: A Roller Coaster Ride 
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By Chris Johnson Dear Reader, Bullish on Bailouts. That's the best way to describe what we saw last week, as investors bought equities while evidence continued that government aid would be available to help the market through its current crisis. |
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| Investing in Uranium: A Roller Coaster Ride |
| Tuesday, 25 September 2007 | ||||||||
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Oil production is not only peaking, but it also has the unfortunate quality of being located in some the globe's most unsavory political hot spots. Compare that to uranium where 38% of the world's uranium reserves are found in Australia. And it’s not just about U.S. energy security concerns. Even the former Soviet Republic Belarus, which was hardest hit by the Chernobyl nuclear accident, is accelerating its nuclear energy program. It does not want to be held hostage to the Russian bear, its primary supplier of natural gas. Awareness of global warming also is contributing to the revival of nuclear power, and hence, uranium. When you read that Greenpeace founder Patrick Moore notes that "Nuclear energy is the only non-greenhouse gas-emitting power source that can effectively replace fossil fuels and satisfy global demand," you know that attitudes may have reached a tipping point.
Finally, the addition of three billion capitalists to the world economy in the last 15 years has accelerated worldwide growth to an unprecedented extent. Everyone wants to live like Americans and Western Europeans. And that means a huge spike in global energy consumption. Meanwhile, the uranium industry has been caught off guard. There are few people still around who really know the business. At the industry's height, about 20,000 engineers and geologists worked in the uranium sector in American companies. That number has plummeted to about 400 engineers and geologists now, many of whom are about to retire. The industry itself is plagued by supply problems like flooding at the Cigar Lake mine in the Canadian province of Saskatchewan. The mine had been expected to provide about 18 million tons of uranium a year, or 17% of world production, when it began producing in 2008. But the flood means that the mine is now unlikely to come on stream before 2011. As one analyst pointed out, it's like the global oil market losing Saudi Arabia’s production. The uranium market experienced its first market wobbles in recent years this summer. There are several explanations. Demand for fueling reactors fell 72% since peaking in April, as utilities were reluctant to rebuild their inventories at high prices. The U.S. Department of Energy's recent auction of half a million pounds of uranium further depressed uranium's price. The real culprit may have been the credit crunch which forced hedge funds to sell uranium holdings to cover losses elsewhere. With speculators holding the equivalent of 22% of global uranium production in 2005, it's easy to point the finger in their direction. But after six weeks of sideways motion, the price of uranium has once again begun to rise. October also tends to be 50% more active than other months of the year as it coincides with the refueling cycles at nuclear plants in the United States. And it's worth pointing out that despite the big bull rally in uranium over the past couple of years, uranium hasn’t come anywhere near its old peak in inflation-adjusted terms. In 1978, uranium hit $43.40 per pound. But adjusted for inflation, that price is around $145 per pound in today’s dollars. On that basis alone, uranium has plenty of upside. The bottom line? Despite some very recent rumblings at industry conferences about new supplies of uranium coming on line, it's likely that demand for uranium will exceed supply for many years to come. The supply and demand fundamentals are still the same as a few months ago. And that means that the uranium boom -- once it finds its feet -- has plenty of legs left. Sincerely, Nicholas A. Vardy Editor, The Global Guru Also Read To find out the name of this, and some of my other red hot picks, sign up for a 60-day trial subscription of Global Bull Market Alert today .
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