The fear around nuclear energy is palpable.
The catastrophic events in Japan on March 11 have put a damper
on the momentum of what was fast becoming a nuclear renaissance.
For the past several years, nuclear proponents promoted nuclear
energy as a clean, efficient, reliable and safe alternative to
dirty fossil fuels - and the world agreed.
A wave of new orders from BRIC countries as well developed
nations created a nuclear renaissance. Then over the past nine
months, the price of uranium began to climb. Dormant since the 2008
recession, uranium rose from US $42 per pound to a 52 week high of
US $72.65 in February.
The spot price of uranium fell over 25 percent in the days
following the earthquake and subsequent tsunami in Japan. Value
investors helped the troubled commodity regain ground buy buying
the plunge. But the question is still on everyone's minds: what's
going to happen from this point forward?
On Monday, Germany announced it will shut down all of its
nuclear reactors by 2022. The new policy is a complete reversal to
the proposal to enhance Germany's nuclear energy established by the
government only seven months prior.
The German Chancellor, Angela Merkel, stated to reporters on
"Our energy system has to be fundamentally changed, and can be
fundamentally changed...We want the electricity of the future to be
safer and, at the same time, reliable and economical."
The decision by the German government to end its dependence on
nuclear energy has once again riled the uranium market.
I believe the German decision is just creating short-term noise
in the uranium market.Once this noise, created by the Japanese
catastrophe and Germany's recent decision, is gone, uranium stocks
will once again reflect earnings - and while sales to reactors in
Japan and Germany may slump, the world's other 436 reactors will be
as hungry as ever for uranium fuel.
Because as people are recovering from the Japan disaster - and
possibly hating nuclear power more than ever - the supply and
demand fundamentals of uranium have not changed in a significant
***The bottom line is that even in the wake of the Japanese
catastrophe, uranium's supply crunch lives on.
If we look out over the next eight to 10 years, which is the
amount of time it takes a nuclear power plant to become fully
operational, the market is still about 400 million pounds short of
The top 10 producers, which make up almost 90 percent of the
uranium market, only produced 110 million pounds of uranium in
2010. In other words, uranium producers need to produce nearly four
times the amount just to meet estimated new demand. The new supply
will have to come from somewhere, or the price of the existing
supply will need to increase to clear the market.
For uranium miners the market is red hot. For investors, shares
of the best uranium mining stocks could represent the best energy
investment opportunity in decades.
The World Nuclear Association's (WNA) chart below sums up why
now is the time to get into uranium related investments. The world
will be using more uranium for years to come - and many great
investment opportunities appear in the midst of a supply crunch.
The supply crunch easily has the potential to become even more
strained with 63 percent (note this is not the same as top ten
producers mentioned above) of the current uranium production coming
from only 10 mines worldwide. Additionally, the global supply of
mined uranium is susceptible to supply shocks if one mine floods,
or stops production for other reasons.
***The most direct way to profit from the coming growth in
nuclear energy and the shortage in uranium is to buy shares in the
most productive uranium miners in the world.
As I stated in this
letter over a month ago
, the tragedy in Japan, and subsequent fear in the market, has
presented us with the opportunity to invest in several well-managed
and fundamentally sound uranium companies. For well-informed
investors with the patience to tolerate volatility for a couple of
months, I think this could potentially be the single best
opportunity to buy and hold uranium stocks.
I will continue to track the nuclear/uranium story closely and
report back to you here in
Small Cap Investor Daily
. Feel free to send in questions, or companies, that you would like
me to discuss. My address is
As you know, I am long-term bullish on uranium fundamentals, and
suggest that you join me for what should be a prosperous ride.