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

Forward-Looking Statements

Statements in this blog may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the company or its management, identify forward-looking statements. These statements are based on current expectations, estimates and projections about the company's business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including those described above. In addition, such statements could be affected by risks and uncertainties related to the exploration for and development of mineralized material, product demand, market and customer acceptance, competition, pricing and development difficulties, as well as general industry and market conditions and growth rates and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release.

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Uranium prices closing in on $ 100

Uranium prices are now officially ten times higher than they were just five years ago, in 2002, when they were around $ 9.50 per pound of U3O8. According to UxC, a leading publisher of uranium prices, the commodity reached $ 95 per pound this week, an increase of $ 4 in relation to last week’s $ 91 per pound. Already closing in on $ 100, the price of the mineral has been skyrocketing in last couple of years. Uranium prices increased 99% in 2006 alone, from $36.25 in the beginning of the year to $72 per pound of U308 in December, and analysts believe the commodity should do just as well this year.

Sean Brodrick, investment director at Sovereign Society, one of the world’s leading publishers of global investment opportunities, outlined reasons for the boom in prices of the radioactive mineral in an article for Moneyweek magazine. According to him, one of the main causes of the rapidly increasing value of uranium is a demand that greatly outstrips supplies of the commodity.

His article points out that current production from uranium mines accounts for only 62% of what is actually needed by existing nuclear power plants. To make things even more interesting for investors, the popularity of nuclear energy is on the rise due to the depletion of oil and gas reserves and an increased resistance towards coal-fired plants, one of the main sources of the greenhouse gasses responsible for global warming. This has led many countries to plan the construction of even more uranium fueled plants. China alone should increase its nuclear capacity five times by 2020, informs a report by the World Nuclear Association.

Another study released in the end of last year by Resource Capital Research and published in the British newspaper The Guardian says that a reactor building program across the world should add 250 nuclear power plants to the 440 already in operation. Also according to The Guardian, the European Commission’s plan for a common energy policy in the bloc should favour nuclear power as a means of reducing carbon emissions and combating volatility of gas and oil prices.

While the popularity and demand for nuclear energy is on the rise, the production of uranium isn’t keeping up, making the mineral more and more valuable. The vulnerability of uranium supplies was highlighted in October of last year when the Cigar Lake mine, in Saskatchewan’s Athabasca basin, flooded. The mine, partly owned by Cameco, was supposed to come into production in 2008 and should have accounted for 40% of the new output of uranium forecast for the next three years and 12% of world demand. With the flood, projects at the mine have been delayed and production is not expected until 2010.

Uranium’s scarcity and, consequently its value, is now guaranteed also by private investors, who are rushing to buy fuel grade uranium in the hopes of profiting from the world’s need for nuclear energy. According to an article published in The Wall Street Journal, investors have started to compete with energy companies in the market for uranium, pushing prices further up. Many have been successful in gaining ownership rights to amounts of the commodity, stored in licensed repositories, thus reducing even more the limited supply of the radioactive mineral.

Sources: The Wall Street Journal, Reuters, The Guardian, Moneyweek and CanAm Uranium

Forward-Looking Statements

Statements in this blog may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, identify forward-looking statements. These statements are based on current expectations, estimates and projections about the company's business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including those described above. In addition, such statements could be affected by risks and uncertainties related to the exploration for and development of mineralized material, product demand, market and customer acceptance, competition, pricing and development difficulties, as well as general industry and market conditions and growth rates and general economic conditions. Any forward-looking statements speak only as of the date on which they are made.