Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Why Uranium Commodity Price Rise is Inevitable

Commodities / Uranium Feb 26, 2010 - 01:54 AM GMT

By: DailyWealth

Commodities

Best Financial Markets Analysis ArticleChris Mayer writes: In the most recent issue of my Special Situations advisory, I showed my readers the most compelling resource investment around. I've spent the past month digging into this story and looking for the best opportunities. Here's what I've found.

The most compelling thing about uranium is probably best expressed in the chart below...



The uranium market has been in deficit for several years, living off the stockpiles of the Cold War. Put simply, we use more than we make.

Looking out to 2018, we're about 400 million pounds short. To get some perspective on that number, here is a look at the top 10 producers of uranium in 2009 and the percentage each makes up of the total market.

Top 10 Uranium Producers

Company Uranium Production
(million lbs)
Primary Supply
Kazatomprom
21.4
17.0%
Cameco
20.2
16.0%
Areva
18.5
14.7%
Rio Tinto
14.1
11.2%
Atomredmetzoloto
11.7
9.9%
BHP Billiton
7.7
6.1%
Navoi
6.6
5.0%
ERA
3.6
2.9%
Uranium One
3.6
2.9%
Paladin
3.5
2.9%
Total
110.6
87.6%

The top producers, which make up nearly 90% of the market, produced about 110 million pounds of uranium last year. So essentially, the industry needs to produce almost four times that to meet the estimated new demand through 2018. On an annual basis, the industry will need to about double in size.

A sidelight to this is the fact that 63% of all uranium comes from just 10 mines. This means that the global supply of uranium is susceptible to supply shocks. If one big mine floods or goes down for whatever reason, it'll make a big wave in the uranium market.

It gets even more interesting...

Most of the best mines are already in production. As with everything else in the resource world these days, the low-hanging fruit is all gone. Future grades will be lower, meaning we'll have to mine a lot more ore to get a given amount of uranium. New mines are in more geologically challenging places. New supply is also coming from riskier places, such as Africa and Kazakhstan. All of this means that costs will go up.

These facts are reflected in the industry's cost curve, as you can see in the chart below.


This tells you that at current production – about 130 million pounds – those last million pounds are a lot more expensive to produce than the first million pounds. It also means that as the industry ramps up beyond 130 million pounds to meet demand, costs will rise sharply.

This is not a perfect predictor, of course. There are new mines that will come online and produce uranium at low costs. But it bodes well for a higher uranium price in the future. The current spot price is around $45 a pound. Only around 10%–30% of the uranium traded in any year is sold on the spot market. Most uranium is sold to utilities via long-term contracts. The longer-term price of uranium is north of $60.

For some perspective on uranium pricing, consider that when uranium got hot in the summer of 2007, the spot price hit $136 a pound. It's done nothing but go down since then. If you are a contrarian thinker, which is to say a good investor, that fact will attract you. I can tell you with great certainty that the uranium price won't go to zero. That downward trend will reverse, and based on all the data I presented above, it looks like a higher uranium price over the next few years is a sure thing – or about as close to a sure thing as you can get in markets.

That's why the uranium price has to go up. If it doesn't, there is no incentive for producers to make more, and hence a lot of reactors are going to go without fuel. More importantly, it can go up. Simply put, the uranium price could double and it wouldn't affect the economics of a nuclear reactor much. This is not true with a lot of commodities. If the price of oil doubled, the global economy would double over in great pain and probably grind to a halt. Not so with uranium.

The biggest potential negative I see is the risk of some nuclear accident that derails this whole thesis as people abandon nuclear. But the industry has a clean safety record going back more than two decades now.

There are 436 reactors in the world that provide about 15% of the world's electricity. The new reactors have fewer moving parts and are much better than the old ones. And most of the world seems to be coming around to the green benefits of nuclear power; even President Obama's administration promises loan guarantees and other goodies for the builders of nuclear reactors. In our carbon-worried world, nuclear is a relatively clean source of energy.

For all these reasons, we see a massive buildup in reactors under construction, planned or proposed. The World Nuclear Association (WNA) says there are 52 reactors under construction, 135 reactors planned and 295 reactors proposed. This is what underpins that demand we talked about up top. Where are all those reactors going to be? Mostly, from China, India, Japan, and the U.S.

Once again, we have a resource story driven by China and India. Neither country produces much uranium. China produces less than 2% of the world's uranium. If you believe "buy what China needs," as I do, then uranium fits well with that worldview. In conclusion, I want to own uranium.

Good investing,

Chris

Editor's note: Chris Mayer is the editor of Capital & Crisis, a monthly advisory we consider required reading at DailyWealth. With Chris' research, you can always count on contrarian investment ideas you won't read about anywhere else. Click here to learn more about Capital & Crisis.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules