Friday, January 28, 2011

"Analyst: This Time, Uranium Demand Is for Real" and The Reformed Broker's Uranium Bet (CCJ; PDN.tsx,asx; URA)

...Words like "uranium", "rare earths", etc. seem to be magic to
 those unsuspecting who are often fleeced...
Gerald M. Loeb
The Battle for Investment Survival
Simon & Schuster, 1935

URA is the GlobalX Uranium ETF, rolled out last November.
CME's GLOBEX has some  U308 swap futures, you probably don't want to take delivery.
Here's a twofer. First up The Energy Report:
Mining Analyst David Talbot of Toronto, Ontario-based Dundee Securities, sees demand for uranium rising far into the future. He points to the extraordinary buildout of infrastructure in India, Russia and especially China, where the number of reactors currently under construction could triple the number already in use, and where growth could increase 14- to 15-fold a decade from now. Dave shares his extensive knowledge and field experience with The Energy Report and leaves readers with a few interesting ideas that present tremendous potential for growth.

The Energy Report: Your list of buy ratings wouldn't be this broad if you weren't still bullish on the spot price of uranium. Are you bullish? If so, what factors are causing you to be?

David Talbot: Yes, I am bullish on the spot price of uranium. I think it's all about demand this time. I believe that in the past, investors were essentially focused on supply disruptions as the driver for uranium prices. This time around, I think the demand fundamentals are strong and people are paying attention to that. If you take a look at the trendlines of the number of reactors that are in operation and that are being planned, built and proposed, this continues to rise month after month without exception. If you look at China, India and Russia alone, these three countries account for about 50% of the reactor build. China currently has 13 reactors in operation, which is about 2% of their electrical production capacity. But it has 27 reactors that are under construction, 50 in the planning stages, and it has plans to grow that number to about 188 reactors by 2020, which would represent about 7% of its electrical production capacity. This could essentially increase the country's uranium use from its current annual 8 million pounds (Mlb.) to about 45–50 Mlb., which is roughly equal to what the U.S. uses today.

But the story doesn't really stop there. Russia's goal appears to be nuclear power domination, and the country is essentially signing high-level trade agreements with foreign governments. Russia also went after Uranium One Inc. (TSX:UUU). Also, countries like Japan and Korea are building out their nuclear power efforts. So, we believe this access to supply is going to become a real concern for many and that uranium prices are likely to continue to rise. I'm assuming $65/lb. U308 price for 2011, $70/lb. next year, $75/lb. for 2013, $67/lb. in 2014 and $65/lb. thereafter.

TER: Uranium bounced along a $40/lb. baseline for a long time, and during this last six months we've seen an amazing increase in price. Have you seen such a spike before?

DT: I would have to say that the increase in 2006–2007 was probably a larger spike. At that time, the uranium price essentially jumped from $40 to $136 within a year's time. Then, everybody was looking at the spot price. Well, in 2007 spot trading was only about 20 Mlb., or only 8% of the total volume of uranium trades. This time around I think it's a little different. The spot market is much, much bigger—about 50 million pounds, which represents about one-third of the entire market....MUCH MORE
And from The reformed Broker:

My 2011 Uranium Trade
Before reading another word, please ask yourself if you're capable of being an adult and not just blindly trading based on what's written here.  Nothing on this site should ever be considered a blanket inducement to make investments.
OK, now that the children are gone, we can continue.

Last night on Fast Money, I mentioned Cameco (CCJ) for the Final Trade segment.  It's a fairly big name but many of my friends on The Street pinged me to say they'd never heard of it.
I'm going to give you some insight into why I've gotten extremely bullish on the Uranium Trade for 2011.  Please keep in mind that any opinions expressed here are subject to change without notice and that I'm not your advisor or broker - I am simply giving you some background on a theme I'm very excited about.
Before I talk stocks, I want to give you some background on the supply/demand picture for uranium itself, because the setup here is delicious.  We'll let Barron's Roundtable legend Felix Zulauf do the talking first, this excerpt comes from his 2011 outlook in which uranium played a starring role:
My next recommendation is in energy, because the rise of emerging economies also leads to rising energy demand. Electricity demand probably will double in emerging markets in the next 20 years. I would buy uranium. It is used to power nuclear plants, and it is used for medical diagnoses and research. There are 441 nuclear reactors operating in the world. They require 185 million ounces of uranium per year. There are 331 proposals to build new reactors. Fifty-eight new reactors are under construction, up from 52 a year ago, and 148 reactors are planned, including 110 that will come onstream in the next 10 years. Twenty reactors will be shut down. The demand side looks solid for many years.
Uranium production is growing, but slowly. Annual production is 47,000 tons. It meets only 60% of demand; the rest is met from utility stockpiles or decommissioned nuclear weapons. Production will increase over time, but it could take 10 years or more until it is sufficient to meet demand.
Uranium prices have soared to the $68 per pound level on the recognition of a few things....MORE
General Electric Asset Management Buying Uranium Producer's Shares Open Market (GE; PDN.asx)
Uranium Prices Surge on China's $511 Billion Investment in Nukes (BHP; CCJ)