At the end of 2013, I was very bullish on uranium as I believed the end of
the 20 year Russian Nuclear Agreement would spark a rally as utilities would
have to buy in the spot market. From December to March many of the uranium
miners such as the uranium mining etf (URA), Cameco (CCJ) and Paladin were
up significantly.
However, for the past two and a half months the spot price has taken a nasty
tumble. It may be similar to the recent shakeout in copper (JJC) below $3.
The marginal players may be shaken out but the long term value investors may
be continuing to accumulate uranium miners at decade low uranium prices below
$30.
Despite this shakeout, I am still bullish and looking at the high quality
junior uranium miners to add to on this pullback.
The end of the 20 year Megatons to Megawatts Program will force the United
States which is the largest consumer of uranium in the world to look to the
domestic uranium producers such as Cameco (CCJ) and Uranerz (URZ).
Look for Japan to turn nuclear reactors back on this summer as they can't
afford to import record amounts of liquefied natural gas. Remember Asian nations
pay 4 to 5 times higher for natural gas. China is making a major IPO to raise
money for expansion of nuclear power as well. Japan and China is confirming
to long term contrarian uranium investors that nuclear will remain a key base-load
power source.
However, the big news will come from Germany who went away from nuclear after
Fukushima and further relied on imported Russian natural gas through the Ukraine.
Electricity costs are skyrocketing in the EU. The tensions and sanctions on
Russia has left Western Europe in a vulnerable situation. The German People
may want to rethink nuclear as did the Japanese and come to the reality that
it is either nuclear or be at the mercy of Putin.
Uranium prices still are irrationally low. This basing period is the best
time to accumulate if you are a long term investor who believes uranium will
rebound. Remember there are more nuclear reactors being built and operated
now then before Fukushima. Supply from mines are declining everyday as most
current operations are a losing proposition. Cameco, BHP, Rio, Areva and Paladin
are all cutting back operations at these low price levels.
These are the best times for contrarians some of who are doubling down at
these levels. They realize that big money continues to wait on the sidelines
to enter the spot market. Uranium Participation Corp (URPTF) raised $58 million
to buy spot uranium. There has not seemed to be much buying since this raise
which may mean they are looking for a time to enter. When the buying begins
look for the uranium spot price to gap higher.
This recent capitulation in the uranium spot price to below $30 may signal
the shorts are exhausted. After arguably seven years of basing, uranium has
all the characteristics for a sector about to bounce off a major bottom.
I expect Uranerz Energy (URZ) to profit nicely as the uranium market comes
back into favor. They have great growth aspects as they just announced their
third planned production center at Jane Dough which will add more feed to the
Nichols Ranch ISR Facility in the heart of the Powder River Basin in Wyoming.
I expect to hear news that the company has made its first sale of yellowcake
uranium this summer.
What is remarkable to note is that Uranerz Energy is still trading way above
its lows despite the spot price hitting new lows. The stock has rallied from
a low around $.80 to close to $2 in 2014. It is entitled to correct 50% to
around $1.40. This may be an area of support.
The reason Uranerz may be getting a premium to other in the beaten down uranium
sector is that they have long term offtake arrangements with utilities at much
higher prices. Many uranium producers who have to sell into the spot price
near term will be under pressure. However, new U.S. producers with the ability
to grow like Uranerz (URZ) may be one of the best places to invest.
That is why this new uranium producer attracted Paul Goranson, former President
of Cameco Resources US subsidiary, the world's largest uranium producer to
join Uranerz as its President and Chief Operating Officer. See our latest interview
by clicking
here.
Paul Goranson was responsible for Cameco's Double U strategy to double US
production at projects such as North Butte and Smith-Highland Ranch. Paul has
over 25 years of uranium mining, processing and permitting experience. We discussed
the fundamental reasons that attracted him to join Uranerz and the recent significance
of the final approval from the NRC to begin uranium production at Nichols Ranch.
Disclosure: Author/Interviewer is long URZ and the company is
a website sponsor.
