BALTIMORE, MD – Since the beginning of 2001, uranium prices have mushroomed 900% selling today for a multi-decade high of $75 per pound. But because of severe supply constraints, we think the energy metal still has plenty of room to grow.
Sometime in the first century, a small group of potters living in a tiny village in Italy discovered that mixing uranium powder with standard glaze gave their ceramics a handsome yellow tint.
The technique was short-lived and disappeared some 400 years later with the fall of the Roman Empire. But in the early 19th century, the Germans rediscovered uranium’s aesthetic properties. This time uranium powder was mixed with glass, creating something known as "vaseline glass".
Vaseline glass, which can still be found in antique shops today, has a yellow-green hue in normal light. But when put under an ultraviolet light, like a black-light, vaseline glass glows a wild fluorescent green. Take a look at the antique vaseline glass pitcher below:
With uranium currently in such short supply, it might seem that using it for decorative glassware is a waste of good material. But here’s something most people don’t know: The radioactive metal is far from rare.
It’s been estimated that the earth’s crust contains more than 88 quintillion pounds of uranium. That’s 88,000,000,000,000,000! The earth contains so much uranium that you can find it pretty much everywhere. As a matter of fact, it’s very likely that there’s uranium right in your own backyard.
But don’t worry. It can’t hurt you.
The total volume of uranium in your backyard is most likely minute. Truth is, there would have to be a highly concentrated deposit back there in order for it to make you sick. And this is a rare occurrence.
The rarity of such highly concentrated deposits makes finding the metal in large quantities incredibly difficult. In fact, despite the massive quantity of uranium on the planet, only a small number of highly concentrated deposits have been pinpointed around the globe.
Over 50% of the uranium produced from mines comes from in Canada (28% of the world’s supply), and Australia (23%). Other major producing countries include Kazakhstan, Russia and Namibia.
Because of the limited number of large uranium deposits, a problem with a single significant mine can cause serve supply constraints.
Like Cigar Lake…
The world’s largest undeveloped, high-grade uranium deposit today is Cigar Lake in Saskatchewan. Cigar Lake, operated by Cameco Corp. (TSX: CCO), holds 232 million pounds of U3O8 at a grade of 19%.
Production from Cigar Lake was scheduled to begin in early 2008. At its peak, Cigar Lake was supposed to provide 17% of world’s uranium supply. But now the future of the mine is in doubt.
A few months ago, Cameco announced that Cigar Lake had sprung a leak and the underground workings are now completely flooded. From what I hear, the mine may be lost completely. But at the very least, the flood will push back production a minimum of twelve months.
News of the flood pushed uranium prices 6.6% higher, from $56 a pound to $60. The increase was the largest weekly gain in 20 years!
Today the energy metal sits at $75 a pound, a 900% increase since early 2001 and a 150% increase from just a year ago when uranium was trading for $30/lb.
And although uranium prices haven’t had a down month in five years, I think the radioactive metal still has a lot of steam behind it.
About 16% of the world’s electricity came from 440 nuclear reactors last year. This figure is constantly growing. Right now there are 28 reactors under construction around the world and another 62 being planned. Japan alone intends to add 11 more by the year 2010 and China hopes to add 24 to 30 by 2020.
So right off the bat we know that demand for the radioactive metal is set to increase just because of the growth in nuclear power generation.
Now get this . . .
Production from the world’s uranium mines now supplies only about 60% of the requirements of the world’s nuclear power utilities leaving a wide gap between production and demand.
The world’s 440 reactors have a combined capacity of some 360,000 megawatts that require about 77,000 tons of uranium per year. Yet in 2005, mines supplied only about 41,000 tons of uranium.
The shortfall has been made up largely from government stockpiles and recycled nuclear weapons. But these supplies are currently running thin and certainly won’t last very much longer.
The supply-demand balance for uranium is tighter than any other major commodity. And the recent Cigar Lake story doesn’t help.
With a global building boom for nuclear power plants underway, demand for uranium is only going to rise. With rising demand will come increased prices. And considering that the market had little breathing room in the first place, Cameco’s Cigar Lake troubles underscores our investment position on uranium.
Simply put, investing in uranium is a "no-brainer." Uranium prices are almost guaranteed to continue increasing in value.
And if prices keep increasing like they have over the past 12 months, I expect uranium to top $125 a pound by 2010.
So how can you leverage higher uranium prices?
Well, you can’t buy futures on the metal. But you can invest in the companies that explore for and produce the uranium.
Personally, I like the upside of mid- to small-cap explorers right now . . . Especially those trading on the TSX Venture Exchange.
I recommend looking for junior mining firms with savvy management, a proven track record and a decent land package in a geopolitically safe country.
These firms should also have mid- to advanced-stage properties. Historic production and drill results are always a plus. I expect firms like these do to very well over the next 3 to 5 years.
Below I’ve reprinted a list of popular uranium stocks from www.u3o8.biz:
Until next time,