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Uranium Market Soaring

[PeterPiper]

Chinese energy needs send uranium market soaring

Shirley Won

From Monday's Globe and Mail

Published Sunday, Jan. 16, 2011 4:00PM EST

Last updated Monday, Jan. 17, 2011 6:56AM EST

The uranium XUX-FTmarket is crackling again, set afire by China’s quest to secure nuclear fuel. And after watching the price of the radioactive metal crater for much of the past three years, investors are once again optimistic.

“Uranium is in a new bull market,” says Rob Lauzon, a portfolio managerwho oversees energy investments at Middlefield Capital Corp.

“We have seen the spot price move from $40 (U.S.) a pound [last March]to over $62. … I think in the next two years, it will settle in that $70to $75 range. If we look out five years from now, we can probably see$80- to $100-a-pound uranium.”

The spot price, which is determined by private contracts, hit bubbleterritory when it peaked at $136 a pound in June, 2007, as hedge fundsput money on the metal’s future. But the price plunged during the globalcredit crisis and remained depressed amid a flood of fresh supply fromKazakhstan in 2009.

Market watchers see higher uranium prices ahead because of tighteningsupply and rising demand, particularly from China and other emergingmarkets. Barring a major nuclear accident, demand is expected to remainbuoyant as developed countries embrace nuclear power as a clean fuel.

Spot prices jumped in November after China signed three long-termcontracts to buy a total of 140 million pounds of uranium from CamecoCorp., French nuclear giant Areva Group and Kazakhstan’s state-ownedminer.

“It’s really the size of these individual deals that caught the market’seye,” said Patricia Mohr, a commodities specialist at Bank of NovaScotia. “China was tying up a large chunk of world supply between nowand 2020. What will happen is that utilities in other countries aregoing to be keen to tie up new supply as well.”

As much as 80 per cent of current world uranium production has alreadybeen sold to utilities under long-term contracts, she said. Meanwhile,demand is expanding.

China is expected to double the number of its nuclear reactors to about80 over the next few years, Ms. Mohr said. “We have been waiting forsome time now for new emerging Asian countries to really hugely expandtheir nuclear power, and it appears that it is now taking place.”

She forecasts an average spot price for uranium of $70 a pound in 2012as production from Kazakhstan slows that year and in 2013.

Salman Partners metals analyst Raymond Goldie is even more bullish onuranium. “The world’s supply of uranium is about 140 million pounds anddemand is about 180 million pounds a year,” he said. “So there is ashortfall of about 40 million pounds.

“It looks we could face a shortage of uranium within a year and a half,if current stockpiles are something below 50 million pounds. On thatbasis, we could easily see the price of uranium double within a year ortwo.”

For the retail investor impressed by the bullish case for uranium, there are several ways to play the sector:

Stocks

Investors can stick to producers such as Cameco Corp. CCO-T, Paladin Energy Ltd. PDN-T and Uranium One Inc. UUU-T Butin rising markets, a better way to play the sector is through juniorminers. These stocks are more volatile but can provide more rewardingreturns, said Dundee Securities analyst David Talbot, who expectsuranium prices to rise to $75 a pound by 2013.

He likes Rockgate Capital Corp. RGT-T, which has a uranium-silver project in West Africa; Hathor Exploration Ltd. HAT-X, whose projects are focused on the Athabasca Basin in Saskatchewan; and UEX Corp. UEX-T, which is 23 per cent owned by Cameco and is also an explorer in the Athabasca Basin.

Mutual funds

Middlefield Uranium Focused Metals Class is70 per cent invested in uranium securities, while the rest is in goldand base metals stocks. The top uranium holdings include Cameco, UraniumOne and Paladin Energy.

Closed-end funds

Uranium Focused Energy Fund UF.UN-T:Run by Middlefield Capital, this fund is 90 per cent invested inuranium stocks with the remainder in oil and gas securities. The largestholdings are Uranium One, Cameco and Paladin Energy.

Uranium Participation Corp. U-T:Run by a subsidiary of uranium miner Denison Mines Corp., the fund buysand stores uranium. Its value moves with the commodity price.

Exchange-traded funds

Global X Uranium ETF

https://www.theglobeandmail.com/globe-investor/chinese-energy-needs-send-uranium-market-soaring/article1872125/

Piper