Is Uranium a Good Investment?

Financial analysts in North America and Europe believe that uranium is one this year’s most promising investments. The commodity was singled out in The Guardian’s list of best choices for the year, published in January.

More recently, Scotiabank economist Pat Mohr told The Province this month that uranium is her top pick for commodity investors. According to her, 80% of global output of uranium from 2008 to 2012 is already committed, since hedge funds and utilities have been aggressively bidding for the mineral. This guarantees that the uranium shortfall should continue for the next couple of years and that the commodity’s prices will remain high.

The optimism is shared in New York and Berlin. The Wall Street Journal speculates that the commodity’s prices could climb to as high as $ 200 a pound before supply catches up and pushes them back down. A little bit more on the conservative side, Germany’s Deutsche Bank expects uranium prices to increase 39% in 2007 and 32% in 2008.

One of the main reasons for all this excitement around the radioactive mineral is that nuclear energy seems to be becoming more popular than ever. Safer to produce than in the past and much cleaner than the energy from oil, gas or coal, nuclear power has even won over environmentalists, such as Greenpeace founder Patrick Moore. A former critic of nuclear power because of the dangers it poses in case of an accident, Moore changed his mind and is now an advocate for uranium powered plants. In an article for The Washington Post, he defended that nuclear energy is the only large-scale, cost-effective energy source that can reduce greenhouse emissions while continuing to satisfy a growing demand for power.

Many governments agree with him. Emerging economies such as China, Russia and India are investing strongly in nuclear energy. Australian Prime Minister John Howard also seems excited about it and set a goal for his country to create 33% of its electricity needs from nuclear power in 2050.

The guarantee that uranium will continue to be popular in the near future is that even with prices rising, it’s still a relatively cheap fuel if compared to oil. The cost of oil to a power station is 40% the total cost of the final power, but the cost of uranium to a power plant is only 5% of the total price of the power produced. This means that there’s still plenty of room for uranium prices to grow before nuclear power becomes nearly as expensive as oil.

Sources: The Wall Street Journal, The Guardian, The Province, Reuters, Investmentu.com, Uranium-stocks.net, Taipan Financial News and CanAm Uranium

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