Wednesday, October 27, 2010

Uranium stocks will go nuclear

For the past two years Uranium prices have been falling, that has been arrested and prices are rising smartly.

Why the sudden and sustained rise?  Obviously part of this is the weakness in the dollar, but that is hiding a larger strategic shift, a shift that has a multi year run in front of it. 

Please read this excerpt from UXC consultants.

"For a long time, the uranium market was dominated by the liquidation of inventories, both commercial and military in origin. As a result, price was depressed and production and exploration efforts were cut back. Over the same period that production was stagnant, reactor requirements were increasing as utilities were able to increase their capacity factors and uprate their reactors. More recently, new demand is emerging from China, India, and Russia, as these countries seek to dramatically increase their nuclear power capabilities.
As a result of these changes, the excesses of the past market have disappeared. As demand increased and supply disruptions appeared, inventories were consumed at a faster rate. Higher prices and higher demand have changed market attitudes from complacency about future supply to concern. In addition to this transition from an inventory-driven market to a production-driven one, the U.S. dollar has depreciated against producer currencies, meaning the price has to push even higher to find an equilibrium level.
The market that we now find ourselves in is like no other in the history of uranium. Production is far below requirements, which are growing. HEU supplies and the enrichment of tails material make up a large portion of supply, but the fate of these supply sources is uncertain. Supply has become more concentrated, making the market more vulnerable to disruptions if there are any problems with a particular supply source. Another source of market vulnerability is the relatively low level of inventory held by buyers and sellers alike."

There is an incredible demand/supply imbalance forming.

Where is all of the demand coming from?

China alone will build 40 MW's of Nuclear generation by 2020.

One thing we know about nuclear power plants is they are long lived assets, and once up and running, are the most cost effective electricity option.  So bottomline, Uranium will need to be purchased regardless of economic cycle.

In my view this is an actionable megatrend, that I intend to ride for the next  four years.  I already posted some trades I expect to make with current positions, but will increase my weightings in new positions, such as URZ and CCJ.

URZ will be a straight purchase of shares, but I am going to play CCJ with options.  I am going to buy the March '12 45's and pay for them with bull put spreads every month the risk reward warrants it.  This is a cheap lotto play, IMO

Let me knw your thoughts on this view.  Thanks Bob


  1. Concise & cogent post. Currently holding URZ & UEC. Am interested in URG & DNN. Any thoughts?

  2. I love DNN, and I think URG is a good choice, as well. I own DNN, UEC, and URRE.

  3. Thanks Bob...Here are a couple of others: QSURD, GDLNF, UURAF...Jordan