COMMENTARY–ProspectingJournal.com–
Early in 2012, two rapidly mobilizing economies put aside their differences and agreed on a deal that would see Canada supply China with 52 million pounds of uranium by 2025. It spoke volumes about the vast energy resources at Canada’s disposal; that Canada’s beacon for 
growth in the 21st century is provided by means well beyond Alberta’s oil sands. The agreed deal promises to propel Canada into an elite group, composed of only itself and Kazakhstan, the world’s two largest uranium producers by some distance, and will be welcomed at a time when industry prospects are high. In Canada’s Athabasca Basin you have unconventionally small deposits that boast grades tens of hundreds of times higher than those found elsewhere. And in China you have one hungry puppy. With the right ingredients in place and the contracts signed, there are many Canadian companies that will look to profit in the coming years.
The World Nuclear Association recently declared that it expects world uranium consumption to grow so substantially that it would require production to double by 2020 in order to meet demand requirements. Their data takes into consideration a uranium agreement between Russia and the United States that is set to expire by 2013, with the termination easily expected to take 24 million pounds of supplied uranium off the market. At the same time, they are also aware that 100 nuclear reactors are currently under construction in China, and when completed, will bring the total tally of operating reactors around the world to 535. In fact, such circumstances have compelled both Cameco (TSX: CCO) andRio Tinto (NYSE: RIO) to forecast a supply shortage within the next 18 months. And if history repeats itself, that should result in a massive price increase in spot uranium.
Stephen Harper’s pledge to supply China with 52 million pounds of uranium could not come at a better time. The energy supply deal is widely expected to generate over $2.5 billion dollars. It also acts as an indication that the world’s largest uranium consumers are quickly being lured by the promise of the Athabasca Basin. On top of the fact that it boasts high-grade deposits, the Athabasca Basin has recently grown in stature in the wake of heightening resource nationalism elsewhere. In providing one of the most mining-friendly jurisdictions in the world, it stands in stark contrast to places like Namibia, Mali and South Africa, where political uncertainty and upheaval are providing constant uncertainties to short-term outlooks.
The ongoing euro zone crisis has also ensured that uranium stocks have remained relatively low. With regards to Uranium One and Cameco shares, Tyler Langton, analyst at JP Morgan, notes, “we view this [euro zone driven] pullback as attractive entry points as we don’t believe either stock is accurately reflecting the significant increase in uranium prices we are forecasting”. It must also be remembered that Japan’s nuclear reactors are all offline, barring one. When asked if prices will remain steady, Versant Partners Analyst, Rob Change, noted, “the main catalyst that many are waiting for is Japan’s possible decision to restart its nuclear facilities…for most of us, we believe that it’s not a matter of if, but when the reactors are restarted. The government has already decided that it needs to”. In considering both points, coupled with the notion that a uranium shortage looms, it might prove opportune to seriously consider some of the majors and juniors in Canada’s Athabasca Basin.
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Jason Staeck
ProspectingJournal.com