There’s no mistaking it. Uranium is a touchy subject, and it’s been exposed to some wild swings.
After rising aggressively in 2010, the uranium spot price dropped after the Fukushima Daiichi nuclear disaster. It fell straight to $50, before bouncing and then re-testing this level again five months later in August.
In the six months since then, we have seen the uranium price hold above $50. In fact, after the year from hell for investors, it looks to me as though uranium stocks are now showing signs of recovery.
The thing is, it wasn’t just uranium that fell after Fukushima.
The whole stock market started a 20% correction soon after.
Yet, uranium stocks had a double blow and many are still down by 50-75%. If there is one thing uranium has plenty of right now, it is the ‘ugly duckling factor’.
The Time to Buy Uranium Stocks
It is hard to find any other sector that is more out of favour. But when the tide turns against you, this is exactly where you find some of the best investment opportunities.
The uranium spot price isn’t going to soar any time soon like it did last year (unless there’s a war in Iran – and oil supply is crippled). However, the market expects a major shortfall in the world’s uranium supply in 2013, and uranium prices are expected to start creeping up as we get closer to this.
So what I expect in 2012 is a steady recovery, with the uranium price around $60/lb by December. This would be a great result after last year’s massive fall in uranium prices. It would help bring uranium back onto the menu for investors.
The fact is, even while the uranium price fell, the major uranium users such as China, India, Russia and Japan are still completely behind nuclear power. They have to be. Nuclear is a major and growing provider of power in these countries.
Nuclear is a valid part of a country’s energy mix, just as trains are a valid part of a country’s transport network. The idea of stopping the growth of the nuclear energy sector after Fukushima is like suggesting you ban trains after a crash.
There are about 430 nuclear power plants operating around the world. In the next five years, 84 new plants are coming on line. Looking beyond that, there are another 499 new ones planned or proposed. Nuclear is here to stay.
The heat in a sector can start rising in when the takeovers start happening. It can show that the big players are seeing a long-term future there. There has been quite a bit of action in the uranium sector in the second half of last year, around the same time the uranium spot price turned around.
Rio Tinto (ASX: RIO) outbid uranium major Cameco (TSE: CCO) to take over Hathor Exploration (TSE: HAT) for C$654 million recently. On top of that, Rio is also investing A$342 million in uranium producer,
Energy Resources of Australia (ASX: ERA).
We’ve also just seen China Guangdong Nuclear Power offer the equivalent of $A979 million for Kalahari Minerals (LON: KAL). As Kalahari owns 43% of Extract Resources (ASX: EXT), this would mean a $2.2 billion payout to Extract’s shareholders.
BHP has recently announced plans to expand production at Olympic Dam from 4.5 ktpa to 17 ktpa over 11 years. This would dwarf the output of most other uranium mines. The decision coincided with the government approving the sale of uranium to India, which has plans to build a large nuclear fleet.
Opportunity Knocks for Uranium Stocks
The point is that there is plenty going on, and this is not what you see in a sector that is on its deathbed. There is now a major disconnect between the activity in the uranium sector, which is very healthy; and prices for uranium stocks, which are at their lows. This situation and the investment opportunity can only last so long.
We are starting to see some stocks recover strongly already…
You see, uranium stocks have been hit hard. However, the uranium stocks I’ve tipped in Diggers & Drillers are now gaining some ground again. In the two months since December, both have gained almost 10% and continue to climb.
2012 looks set to be a good year for uranium shares.
Uranium stocks are out of fashion now. But my point is fashions change…
And there’s value here.
If you want to be ahead of the crowd, the next 12 months will be a rare period of opportunity for investing in uranium stocks.
Dr. Alex Cowie
Editor, Diggers & Drillers
Publisher’s Note: Dr. Alex Cowie will be appearing at After America: the Port Phillip Publishing Investment Symposium, March 14th-16th at Sydney’s Intercontinental Hotel.
From the Archives…
Iran Oil and the Disintegration of the Petrodollar Standard
2012-02-17 – Dan Denning
Global Oil Chokepoints and the New Silk Road for Energy
2012-02-16 – Dan Denning
Cash In As Yet Another Housing Bubble Bursts
2012-02-15 – David Stevenson
Uranium Stocks – The Restricted Aussie Export That Could Make You Money
2012-02-14 – Kris Sayce
Health, Wealth and Stealth Inflation in the Great Food Swindle
2012-02-13 – Greg Canavan
