Uranium stocks: electricity is in demand

Uranium prices peaked at 1979 to $43 U.S. a pound, on fears of production shortages. Many nuclear power plants then began hoarding uranium. However, supply disruptions never materialized. As operators used up their uranium inventories in subsequent years, the price of uranium fell to as low as $7.10 U.S. a pound in December 2000. Prices moved up steadily after that, and got as high as $138 U.S. a pound in June 2007.

Uranium prices have since moved down to around $42 U.S. a pound. However, longer term, uranium demand is still likely to grow and push up the value of some uranium stocks.

Uranium consumption will rise with nuclear power

China and India are likely to be the biggest sources of new nuclear-power demand. Together, they plan to build 70-80 nuclear reactors by 2020. What’s more, global warming concerns, as well as America’s growing emphasis on energy independence, could lead to an expansion of the U.S. nuclear-generating industry.

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With any mine, there is a long lead time from exploration and discovery to production. That’s especially so with uranium, which requires an extra level of regulatory and environmental permitting because of its radioactivity.

Increased supply will come on the market as new mines go into production. As well, there’s no guarantee that planned nuclear facilities will ever be built. Nuclear plants cost $2 billion or more each, and continued low oil and natural gas prices would cut the pressure utilities are under to build new reactors, with a corresponding effect on the prices of uranium stocks. In any event, it will likely take until at least 2010 before new nuclear plants go into production.

Our view is that uranium prices could move up only slowly as significant new primary mine production scheduled to start in next few years pushes up supply. In short, we feel that most uranium stocks are a not worth investing in. However, selected uranium producers that will show rising production – and hence rising cash flow – even if uranium prices hold steady or rise only slowly.