I have recently returned from
the PDAC convention as an invited speaker. This is the largest mining
conference in the entire world. One of the areas which is seeing increased
investment interest is the overlooked junior uranium miners (URA) and explorers. The uranium
miners have been basing for two years following Fukushima, shaking out plenty
of the weak retail investors. However, this undervalued sector may be poised
for a major rebound in 2013 as I expect an increase of institutional interest
and merger and acquisition activity. Already the two-year downtrend in the
uranium prices is being broken to the upside after bouncing off three year
lows. (click to enlarge)
For many months, I
highlighted the CB&I (CBI) deal with the Shaw Group (SHAW), the
Chinese-Cameco connection, The Russians and Uranium One and the coming
acquisition of junior explorers in the Athabasca Basin. Witness the
acquisition of Fission Energy (FSSIF.PK), which borders the famous Hathor
Deposit which was taken over by Rio Tinto (RIO) in 2011. Finally, after two
years the sentiment has changed and is turning positive. This sector is
extremely active with investment interest and confirms my belief that the death
of nuclear that was called by so many analysts over the past two years was
premature.
Large companies such as Cameco
(CCJ), BHP (BHP) and Rio Tinto are delaying large capital expansions and may
be looking for undervalued juniors in mining friendly jurisdictions with
easier capital requirements. The uranium sector was active at PDAC as
investors expect more deals at these bargain valuations.
The general equity markets are
hitting new highs while uranium is well below its pre-credit crisis highs of
over $125 a pound. The supply demand imbalance is already present and
investors are looking to capitalize on the upcoming expiration of the Russian
HEU agreement in 2013. For 20 years an estimated 24 million pounds of uranium
were supplied to utilities from Russian warheads. These secondary supplies
will now need to be made up by increased uranium mining.
Cameco expects the demand for
uranium to increase nearly one third over the next decade. While the rest of
the resource sector is weak, the increased M&A in uranium most notably by
Uranium One-ARMZ and Fission may be signaling that the big money feels we are
near the bottom.
While the precious metals
explorers are seeing tight markets, investors are financing uranium
exploration companies. Most notably a tiny stock in the Athabasca Basin
partnered with Fission. Alpha Minerals (ESOFD.PK) had encouraging drill
results and soared seven fold.
Investors are taking interest
in good news from uranium explorers, which isn't the case for gold and silver
explorers at the moment. Momentum is returning to uranium and investors are
beginning to bid up prices. Remember I called this
rally many months ago when uranium was completely ignored by 99% of the
analyst community.
Finally the mainstream public
is realizing that the costs of governments exiting from nuclear energy are
just too costly. Following Fukushima a few countries made plans to seek
alternatives to nuclear and hopefully rely upon renewables such as wind and solar.
This was led most notably by Japan and Germany.
Their are not many high
quality producers that are publicly traded after the Uranium One takeout
other than Cameco and Paladin (PALAF.PK). Look for producers and near-term
producers in the United States who are fully permitted. U.S. utilities need a
major increase of uranium mining to power its 104 reactors or else the lights
could go out.
Now these same countries may
be realizing this may be a failed experiment. A phase out from nuclear would
be just too expensive and could prove to be costly to their nation's
transmission grids.
Recently, the Japanese people
have elected a pro-nuclear government and German utilities are suing the
government in opposition to rising electricity costs and air pollution. I would
not be surprised to see the German people make a similar move as the
Japanese, to swing the other way and turn pro-nuclear to fight rising costs
and increased air pollution.
The so called green energy
initiative to move away from nuclear has cost Germany dearly not only
financially but environmentally. Carbon dioxide emissions increased in 2012
as a result of closing eight nuclear reactors following Fukushima. Germany
was on track before Fukushima to reduce noxious emissions to a record low.
The modest exit from nuclear
meant more reliance on the use of coal and natural gas. It should be noted,
Germany is not nuclear free as many incorrectly assume. Over 16% of Germany's
power is still supplied from nuclear.
Industrialized societies
increasingly need a form of base-load electricity. Look at the recent Super
Bowl when the power went out and the game was stopped. Who would've ever
thought that the most popular event in modern day culture could be stalled
due to a power failure.
How soon we forget the greatest
power outage in history in India just several months ago, which affected 670
million people as the grid collapsed. These power failures are still
occurring all over the world. Modern industrial civilizations including the
emerging nations such as China, India and Russia need electricity 24 hours a
day, 7 days a week, 365 days a year. Consumption is increasing exponentially
and will need additional uranium supplies from new low cost mines.
Disclosure: I have no
positions in any stocks mentioned, and no plans to initiate any positions
within the next 72 hours.