Financial Post http://business.financialpost.com/2011/02/02/uranium-feeling-the-love/ Uranium feeling the love
Eric Lam February 2, 2011 ? 3:53 pm
The Financial Post takes a weekly look at investing products worthy of a spot in your kit. This week: Uranium
While hot-shot commodities copper and gold seem to be the ones always grabbing the headlines as they post record high after record high, other materials have also been simmering in the background, waiting for their turn in the spotlight.
One metal that is pushing for more love from the commodity world is uranium, the less radioactive cousin of plutonium that was once used in nuclear warheads and is now found in slightly less explosive power plants.
Spot prices for the metal posted their largest monthly increase since June 2007 in January, up 17% to US$73 a pound, data from industry tracker Ux Consulting Co. shows.
And over the past seven months spot prices have jumped more than 70%. Term prices, which account for uranium sold on contract, are also at US$73 a pound, rising US$8 as producers attempt to keep up with the spot price.
?Ux Consulting believes that the rapid rise in spot uranium prices is drawing buyers into the market as they worry about further price increases and being forced to pay more for their requirements,? Greg Barnes, base metals analyst with TD Newcrest, said in a note. ?Utilities in North America, Europe and Asia are expected to enter the term market over the next few months.?
The latest price spike was likely fuelled by uranium producer Energy Resources of Australia Ltd., which decided last week to suspend processing operations for up to three months at its Ranger mine to make sure recent flooding had not breached its tailings dam.
And of course, U.S. President Barack Obama said the nation was approaching a ?Sputnik moment? for clean energy technology in his State of the Union address last week. With the United States now looking to invest heavily in clean energy to win this latest ?space race,? demand for uranium will likely increase.
?There?s lots of expectations of steady demand in the long-term because of the shift to clean energy,? said Kendrick Jordan, senior economist with BMO Capital Markets.
Patricia Mohr, vice-president of economics and commodities specialist at Bank of Nova Scotia, said there is a further wrinkle in the supply story to consider. The Megatons to Megawatts program, a 20-year arrangement between Russia and the United States to convert 500 tonnes of highly enriched uranium from the equivalent of 20,000 Russian warheads into useable uranium fuel, will run out in 2013.
?While that seems like a long time from now, countries need to plan ahead,? she said. Ms. Mohr estimates prices may reach US$85 a pound by the middle of next year, with spikes higher before then.
One way to take advantage of these pricing surges directly is by buying into Uranium Participation Corp., a Toronto-based investment holding company listed on the Toronto Stock Exchange that buys and holds physical uranium. At the end of 2010, the company?s uranium holdings were worth more than $852-million.
There are also plenty of ETFs that track uranium, the nuclear energy sector, or both. For example the Uranium+Nuclear Energy ETF from Van Eck Global follows the DAXglobal nuclear energy index, and its top holdings include Constellation Energy Group Inc. and Canadian firms Cameco Corp. and Uranium One Inc. The fund has US$275-million in assets with a management fee of 0.62%.
The Global X Uranium ETF from Global Funds, meanwhile, is the world?s first fund linked directly to uranium mining companies, and began trading in November. It manages assets worth US$175-million, while carrying a management fee of 0.69%.
That said, there are risks to investing in uranium. In May 2009, shares in Uranium One Inc. plunged 40% in one day after a political scandal in Kazakhstan?s state mining arm put its operations there in jeopardy. The company has since sold majority control of its operations to Russia?s state-owned uranium company JSCAtomredmetzoloto. [email protected]
http://tradingstocks.me/uranium-price-forecast-for-2011-and-2012/ How high will uranium prices go in 2011 and 2012? At least one analyst, Patricia Mohr, vice-president of economics and commodities specialist at Bank of Nova Scotia, sees prices hitting $85 by the middle of 2012. She cites the Megatons to Megawatts program?s end in 2013 as a big factor in the upward pressure on prices. The 20-year agreement between Russia and the U.S. mandated that the two countries convert 500 tons of weapons grade uranium into useable fuel for power plants. With the deal set to expire in two years, uranium supplies will be strained.
?While that seems like a long time from now, countries need to plan ahead,? Mohr tells the Financial Post.
A confluence of other factors are expected to push uranium prices higher in the near and long-term. Flooding in a major Australian uranium mine owned by Energy Resources of Australia Limited (ASX:ERA) will put short-term strain on supplies. Demand increases are expected in just about every country in the world, from South Africa to China, Canada and the U.S., and stocks that hold physical uranium including Uranium Participation Corp. (TSE:U) could manipulate spot prices on the open market.
President Obama?s declaration, too, that the United States? need to move to cleaner energy is tantamount to another ?Sputnik Moment? proves not that the government is committed to cleaning up the environment so much as a concession that green energy is a matter of national security as prices for coal and oil are expected to surge in coming years. Solar and wind power get the press, but uranium will be the backbone in any move toward a greener economy.
PDN Price at posting:
$5.21 Sentiment: Buy Disclosure: Held
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