Is Uranium Ready To Explode?
The spot price of uranium had a spectacular run over the last few years, heading from a price of around $20 per pound in 2005 to a peak of almost $140 per pound only two years later. Many uranium companies stock prices mirrored this trend, exploding up in price over the past 24 months before sharply selling off in the summer of 2007.
What does this mean for the average investor? Should uranium be considered as part of your portfolio? When I say “uraniumâ€, just what do I mean?
The demand for the actual uranium mineral is expected to rise considerably in the next 20 years. This is due to increasing global demand, primarily from nuclear reactors. With environmentalists continually pushing for a cleaner source of energy, uranium has become seriously considered by many countries as a viable “zero emission†energy source. (The nuclear waste is another issue altogether, but nuclear energy does not create greenhouse gasses like other energy sources). China has recently announced that they plan to build about 30 new nuclear reactors over the next 15 years. What’s so attractive to uranium investors is that once the billions of dollars have been spent on the plant, the input cost of the actual uranium is a very small factor in the overall cost of the energy produced. The nuclear power plant can’t use an alternate source of fuel. It must buy uranium. And China could be on track to become biggest energy consumer in the world over the next 20 to 50 years.
There are some different ways to play uranium, but all of them have one thing in common: a very long-term focus. If you are an investor in your fifties and looking to retire in the next 2 years, look to safer and more conventional securities. However, if you have a 10-year time horizon (or longer) then you should think about jumping on board one of these plays.
1) Uranium Focused Energy Fund - This mutual fund is listed on the Toronto Stock Exchange and holds securities related to the uranium and general energy sector. It was initially offered in March 2007—right before the Uranium spot price took a huge tumble. It’s NAV (net asset value) price hovered under $10 before plunging to $6.21 in August, but it’s back to almost $8 as of November 15th.
2) Uranium One, Inc. (TSX: UUU) - This company has mines in South Africa, Australia, Canada and the U.S. It was trading at around $26 in the summer before the spot price collapsed; it now sits at around $9.
3) Paladin Energy Ltd. (TSX: PDN) - This company operates mines in Nambia, South Africa and also Australia. The stock is very volatile, having fluxed from $5 to almost $10 over the past 12 months.
4) Uranium Participation Corporation (TSX: U) - If buying the actual uranium is more your thing, then consider UPC. This investment fund basically holds physical uranium. It’s NAV (net asset value) fluxes as it’s value increases (or decreases) in the open market.
Many of these stocks fluctuate with the actual spot price of uranium. The website www.uxc.com gives weekly updates to the market price of uranium, which could in turn affect the price of uranium companies.
In all likelihood, uranium is NOT ready to explode any time in the next 12 months. However, if you are kicking yourself for missing the last incredible run that uranium had, keep an eye on one or two of these plays as they may run again when they fall back in investor’s favor. Typically, investors will not buy stocks that have been beaten down… and then after they rise again, people shout, “if only I had bought earlier!” Remember to think long term.
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Thanks for the review of Uranium. I have been hearing a lot about investing in Uranium but never really looked into that much. It sounds like it may be a good long term investment.
URRE was one of the companies that I was watching back when uranium was topping. There was a lot of talk of it being a takeover target. I lost interest in it but it’s still out there so apparently nothing ever came of it. CCJ is another, not a pure play, but they really saw their stock run up. They’ve shaved about 20% off since their peak.
[...] STG asks if Uranium is About to Explode. [...]
The original uranium bug (a newsletter that got in when Uranium was worth $x is named The Dines Letter (by James Dines). He has made a lot of people a ton of money (I know a few people in that group). His subscription newsletter is expensive but its also one of the very top performing ones in the world.
On the other side of the coin, Peter Grandich (grandich.com) is another expert that has done very well and he has recently said Uranium may be the answer to our future energy needs. His is a free report/publication. It’s pretty interesting nonetheless.
Both men may be able to give some insight into which uranium stocks are showing promise.