u fundamentals, page-10

Another valid point to consider:

Urani-Mania Rerun

In contrast to the rare earth elements tale, Rick believes that the uranium story that fed the mania three years ago remains credible. In fact, he says, Everything that was true in the uranium story three years ago was 10 years ago and its all true today, but its been priced differently. Thats because uraniumwhich first captured his attention in the early 2000s when it was pretty unpopular, trading below $10 per pound and bottoming out at $7.10 on December 25, 2000is a strategic fuel that has a great place in the worlds energy mix. The world is consuming more uranium than it produces. . .the above-ground supply will eventually go away and there will be shortages.

He lost interest during the manic period of 2007, when the uranium price peaked at nearly $138 per pound, but is looking at uranium stocks again, with yellowcake prices pretty much confined to the $40 to $50 band since the end of 2008. Because we consume more than we produce, we will have shortages, and the competition among users who need it will drive up prices, he reasons. Many countries are staking their energy future on uranium. I dont believe all of the plants that are planned and talked about now will be built, but enough will be built that there will be severe supply shortages. The uranium price has to go up to reflect that, he says, and more importantly, it can go up. The price of uranium is a fairly small component of the cost of the electrical production from a nuclear power plant; the price could double and still not have too measurable an impact on the power price that comes out of the reactor.

As he surveys the uranium landscape, Rick sees a world that hadnt looked for uranium for 20 or 25 years as a consequence of the fact that they were losing so much money on the uranium that they had found. When uranium prices rose and the uranium companies were able to attract cheap capital and deploy it to exploration, there was an amazing amount of low-hanging fruit because for all practical purposes it was a new activity. There have been some very attractive recent discoveries that havent been rewarded with the escalation of market capitalizations that you would have seen with a discovery of equivalent value in the gold business, he adds.

A new twist to the uranium story makes it even more compelling than before, in Ricks view. In the past, the development of a uranium mine was really the sole province of a major or a super-major, he observes, but increasinglydue to the strategic nature of uranium depositsjuniors that discover major uranium deposits will have financing options open to them that were not open in the past. He explains that lenders increasingly are requiring plant operators to lock in supplies of uranium over the entire amortization period of the loan. For example, if an operator were to build a new reactor in for $6 billion and borrowed $4 billion over 30 years to finance it, the bank would require them to lock in a million pounds of uranium a year for 30 years. Given that there are well over 100 reactors planned for the next 10 years, probably 50 of which will be built, I believe there will be incredible demand to lock in supplies. Those off-take agreements can be used by fairly small companies to finance the construction of uranium mines.

(http://www.uranium-stocks.net/rick-rule-energy-bull/#more-1154)


Cheers, Skip