The 2017 Investor Outlook for Uranium
One of the great investments since the election has been uranium. It has soared. And this just after the spot price of uranium hit a 13-year low in November.
That low was painful. But man, just look at the chart below of the Uranium Participation Corp. (TSX: U), a fund that invests in physical uranium oxide and uranium hexafluoride.
Not only was it recently up 14%… but it seems to be accelerating.
For a while, the only driver of uranium seemed to be the incoming Trump administration. People expected Trump’s team, which is pushing deregulation, to lift roadblocks to new nuclear development.
Things really got a boost in early January, thanks to Kazakhstan. Kazakhstan produces 39% of the world’s uranium – and at very low cost, too. That country’s huge supply has been a big weight on uranium prices.
And on January 10 came some interesting news from the head of Kazakhstan’s national uranium company. Kazatomprom Chairman Askar Zhumagaliyev said his country would cut uranium production by 10%. That will take away nearly 4% of the world’s uranium supply.
So maybe the market was rising not only because of Trump’s election, but because insiders knew the Kazatomprom cut was coming.
So is this a good time to buy into the uranium rush? A lot of people are touting small uranium stocks that have already run up quite a bit.
Here’s what I think. I think we should take the advice of Duke NUKEM.
Duke NUKEM is my nickname for Cameco Corp. (NYSE: CCJ). I call it that because Cameco is the biggest North American uranium producer. Also, among its divisions, it has a segment called NUKEM, which acts as a market intermediary between uranium producers and nuclear-electric utilities.
Anyway, on January 17, Cameco announced preliminary 2016 results and its 2017 outlook. It told analysts they were way too optimistic.
Grant Isaac, Cameco’s chief financial officer, said that even after recent production cuts, the market is still oversupplied. It has been ever since Japan closed most of its nuclear plants following the accident at Fukushima in 2011.
Isaac says utilities won’t need new uranium until about 2022. That’s when Cameco expects demand will increase to the point that it cannot be satisfied by existing supply.
But what about Kazakhstan’s cuts? Cameco is taking a “wait and see” approach as to whether the Kazakhs actually follow through.
Looking on the Sunny Side of Life
Let me tell you, I talk to uranium miners, CEOs and other executives on a regular basis. I’ve never met one who is a pessimist. They know the market is bottoming. Prices are about to head higher! This time for sure…
I’ve been hearing this story for years.
But they do have reason for optimism. Heck, you probably know why. Let’s run down the list…
China, which has 35 operating nuclear power plants, is building 20 more right now. And according to data from Energy Fuels, China has plans to build 177 more reactors.
Meanwhile, India, which has 22 nuclear power plants now, is building five more. And it has another 64 planned or proposed.
Worldwide, there are 58 nuclear power plants under construction. Only 25 are in China and India. So this is a global trend.
Sure, not all the proposed plants will be built. But many will by 2022.
And like it or not, nuclear is here to stay. Most countries see that nuclear power is an essential part of their energy supply. Right along with hydro, natural gas, solar and wind. Nuclear provides a “baseload” that solar and wind energy cannot because they vary with the weather.
Now, battery technology could improve to the point that we don’t need nuclear. But that could take a while.
Obviously, Duke NUKEM isn’t as bullish as many industry analysts in the short term. But long term, I love the Cameco story.
Why? Because it has 410 million pounds of proven and probable reserves. It has another 750 million pounds of measured, indicated and inferred resources. And it recently opened the Cigar Lake mine. That mine has uranium grades 100 times the world’s average. This, in turn, is lowering Cameco’s costs by about 14%.
If you bought the recent dip in Cameco, you’d have made 10% when it rebounded the next day. In one day!
So my approach to this industry would be “buy the dips.” There’s always a “disaster” now and then. Wait for it and buy on the cheap. Because those long-term trends are both undeniable and irresistible.
As Duke NUKEM says, this is a long-distance race. The long-term fundamentals look great. So you have time to be choosy about your entry point.