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While most
commodities have been plummeting in vicious corrections of late, one
commodity remains not only unscathed but is relentlessly moving higher. Uranium
closed the month of September with the most recent spot and term prices at
$54 per pound, up over seven times from its lows in the year 2000 of around
$7 per pound! Uranium stocks have traded down somewhat in sympathy with
energy and precious metal stocks in the last month, yet the need for new
production could not be more glaring. As you will see from the evidence that
follows, identifying the companies that can bring on sizable deposits over
the next few years are about as sure a bet as you can make in the uncertain
world of stocks.
Currently, there are
a little over 440 nuclear power plants operating around the world in 31
countries producing about 17% of the world’s electricity. Over 100 of
these are in the United States and those produce about 20% of our electricity
needs. Depending on your source and there are many: Uranium Information
Center, International Atomic Energy Agency, World Nuclear Association, The UX
Consulting Company, as well as a few of the major brokerage houses; these
reactors use between 170-180 million pounds a year of uranium of which maybe
a little over 100 million pounds is mined. The shortfall which ranges between
70-80 million pounds per annum is procured from either natural and enriched
uranium inventories or the reprocessing of spent reactor fuels. These are the
supplies which are in steady decline and must be replaced in addition to
fulfilling new demand from reactors which are under construction or in the
planning stages.
There are 30 new
nuclear reactors under construction with another 50 approved, more than half
of these in Asia. In addition, there are close to another 100 proposed. China and India are among the leading catalysts behind this newfound growth with over 50 planned,
proposed, or under construction between them. While estimates vary we should
expect at least 100 more reactors operating by 2015 and close to 400 more by
2030. This highlights the emerging need and scramble to find and develop new
reserves.
Another big catalyst
which surprisingly received little fanfare when announced was when Russia
recently announced it would not be renewing its (HEU) highly-enriched uranium
agreement which expires in 2013. For the US in particular this is a highly
significant event since the US has been receiving an allotment of 15 Million
pounds per year out of the total 23 Million pounds supplied annually through
this agreement. It becomes even more alarming when one considers the US consumes about 50 Million pounds per year and produces only about 3 Million pounds per
year.
We believe
identifying the big winners in the uranium industry will depend on finding
producers with large or highly economic deposits in politically safe
environments. In light of this we note that while Canada is the leading
supplier of world demand it has only 12% of known reserves while Australia supplies 23% of world demand yet has 30% of known reserves. Other big reserve
holders are Kazakhstan 17%, South Africa 8%, Namibia 6%, and Russia, Brazil, and the US with about 4% each. Kazakhstan is one of the big hopes as far as rapidly
increasing supply. They are hoping to almost quadruple their production from
last year by 2010 from 10 Million pounds to 39 Million pounds although many
industry insiders are highly skeptical. We believe identifying the next big
projects to come online and the related companies is a high percentage bet to
score outsized returns in this arena.
Richard J. Greene
Managing Partner, Portfolio
Manager
Thunder Capital Management
More articles by the author can be accessed by the
"Research Articles" choice at: www.thundercapital.com
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