Outlook for Uranium

Source: U3O8.biz

Going forward, the picture is mixed.

On the bearish side …

Both Macquarie and UBS forecast spot prices will average$47 per pound this year, down from an average of $52 per pound in 2009. In other words: uranium is not expected to join the recovery elsewhere in the commodity space anytime soon.

On the bullish side …

Macquarie does expect the spot price to return to $80 per pound by 2012.And RBC Capital Markets expects the price of uranium to rise to $80 a pound in 3 years’ time (2013) but then fall back to $60 a pound in 2019.

RBC has quite a detailed report free online.  Some highlights from RBC’s report:

• Uranium demand will grow by an average of 4.4% per year during the next 20 years, The increase in demand is driven mostly by China as it will lead the world in new reactor builds over the next two decades.
• Governments will continue to support new new nuclear plants.  This trend should continue as nuclear power is seen as a clean alternative for baseload generation.
• The supply of uranium should grow by an average of 5% annually until 2015, but fall thereafter as reserves are exhausted.

Interestingly, RBC believes that output from Kazakh mines will fall due to technical problems that can’t be resolved.  And it is taking into account Cameco’s Cigar Lake Mine coming online in 2013.

RBC also gives these three caveats …

1. Any major problem with a nuclear reactor could quickly curtail new reactor builds and reduce demand.
2. Technical or regulatory problems could reduce mine supply.
3. Material owned by speculators and investors could temporarily flood the market.

LET’S GO, CAMECO!

So what’s the deal with Cameco’s Cigar Lake Project, the world’s largest unmined uranium deposit?  You’ll remember that the uranium bull market started when the Cigar Lake Mine flooded in 2006, and flooded AGAIN in 2008!  The only reason uranium prices didn’t take off a second time (I think) is because Kazakhstan’s enormous production had come online by that time.

Well, the mine is drained out (again), and Cameco plans to have it in production in 2013.  At full production, this mine should produce 18 million pounds of uranium a year.

That will be good news for Cameco (CCJ: 25.54 +0.53 +2.12%), which owns 50% of the project.

As for the rest of Cigar Lake, French nuclear giant Areva owns 37%. Idemitsu Canada Resources owns the rest.

So, Cigar Lake (if it doesn’t flood again) is good news for these large uranium miners, but the increase in supply is especially good news for utilities that use uranium in nuclear power plants.

Not so good for, say, the fund that holds physical uranium, like Canada’s Uranium Participation Corp …

And that’s why I made the nuclear recommendation that I did in my Green Energy report, “The Golden Age of Green Energy.”I picked a fund whose two largest holdings are Areva and Cameco. It also holds a bunch of utilities that use nuclear power – utilities that could be showered by buckets of government money as the world turns toward nuclear power as a clean fuel.

That doesn’t mean other uranium miners can’t do well. We have one in the Red-Hot Global Small-Caps portfolio that I think is a prime candidate for a takeover, and it has very rich deposits to boot. But you have to be selective.And for the most part, there could be easier money to be made elsewhere … for now.  I’m talking about select plays in gold, silver, oil, natural gas, wind, solar, and more.

The market outlook changes all the time, as new forces and developments come into play. For now, I’m not bullish on uranium prices, I am bullish on select uranium stocks and funds, and I’m very bullish on nuclear power as a clean fuel of the future.

By the way, if you haven’t jumped onboard the 9 recommendations in “The Golden Age of Green Energy,” the portfolio is showing a small open gain from my tracked entry point, but it’s still a good time to get in.  Originally that report had eight recommendations, but I added another pick.  And remember, there are at least three updates to come on that report.