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It’s looking more likely that 2013 is going to be a profitable year for those who know how to invest in uranium.
That will be a nice turnaround from the past two years…
For the past couple years, the nuclear accident at Fukushima in Japan seems to have put the industry on ice as far as investors are concerned.
There has been little interest in most aspects of the nuclear industry, including uranium.
The price of uranium (U3O8) most recently hit a peak at $72 a pound in January 2011. It has been on a fairly steady decline since the Fukushima earthquake and is currently selling at a price of $40.00 a pound.
But the lights have not gone out for good…
The emerging countries, hungry for electricity to power their economies, are proceeding with plans to build a good number of nuclear reactors. Countries including China, India, Russia and Abu Dhabi are all forging ahead with construction of nuclear plants. In China, construction of twenty-eight nuclear reactors is already underway with 49 planned.
Even in Europe, where high-profile Germany has stepped away from nuclear power, countries such as Turkey, Finland, Czech Republic and the United Kingdom are likely to go ahead with construction of new nuclear power plants. A few will also be built in the United States.
Fiona Reilly, partner and head of nuclear services at Norton Rose, told the Financial Times, “Nuclear projects take time to develop, but activity is building. Fukushima has not had the effect people had initially expected.”
This is good news for the industry – and for those who know how to invest in uranium.
Uranium Supply Shortages
Also good news for uranium is the situation on the supply side.
Money Morning Global Resources Specialist Peter Krauth points out that total consumption of uranium in 2011 was 176.7 million pounds. But last year, only 135 million pounds of uranium was mined. That’s a deficit of about 41 million pounds.
It’s a deficit likely to grow even larger in the years ahead.
The largest uranium producer, Kazakhstan, is delaying expansion of its mines.
Among the uranium mining firms, the larger companies are not expanding production because of low prices. And many of the smaller uranium firms cannot get funding and are folding.
For many years, supply deficits in the market were covered by the Megatons to Megawatts program. This is the program that converts uranium in Russian nuclear warheads to lower-grade uranium for use in nuclear reactors.
This program, however, will end in 2013 and the Russians are very unlikely to renew the agreement. Krauth believes that with this source of supply gone, the uranium market will face a deficit of 50-65 million pounds annually.
That points to higher prices.
And higher prices will lead to profits for investors willing to invest into this unloved sector. Here’s how to do that.
How to Invest in Uranium
There are several alternatives for those seeking an investment into uranium.
The first path is to buy the stocks of uranium mining companies.
One prime example is Cameco Corp. (NYSE: CCJ), which is one of the world’s largest uranium mining producers. It accounts for about 14% of global production from its mines in Canada, the United States and Kazakhstan. The company has roughly 465 million pounds of proven and provable uranium reserves and holds premier positions in some of the world’s most promising areas for new uranium discoveries in Canada and Australia.
A second alternative is gaining exposure to the sector as a whole through the purchase of an exchange-traded fund.
The most liquid ETF available for purchase is the Global X Uranium ETF (NYSEArca: URA), which contains a portfolio of 20 uranium companies. The largest position in the ETF is Cameco (23.1%), followed by Uranium One(16.64%) and Paladin Energy(8.86%). The total annual fund operating expense is 0.69%. The fund gained 7.26% in May.
There is also a way investors can own an investment vehicle that actually owns physical uranium, which is the purest way to gain from a rise in the uranium price.
For that investment, we have to go north of the border to Canada and Uranium Participation Corporation. It trades on the Toronto Exchange under the symbol U or on the Pink Sheets in the United States under the symbol URPTF.
Uranium Participation is an investment holding company that invests into uranium itself, either in the form of uranium oxide (U3O8) or uranium hexafloride (UF6). The manager of this unique investment is uranium mining company, Denison Mines (NYSE MKT: DNN).
In a recent exclusive interview with Money Morning, famed resources investor Rick Rule shared why he thinks uranium is a great investment for 2013. Here’s his analysis: Don’t Miss the Next Raging Bull Market in Uranium
- Money Morning:
Unloved Uranium Is About to Get Much More Attractive
- Money Morning:
Why Uranium Prices Are at a Critical Tipping Point
- Financial Times:
Nuclear Industry Must Compete on Cost in Future Energy Mix