In September of 2010 one of my peers issued the Energy Opportunity Report #4: Nuclear Power Stocks. In that report he made the case for the coming boom in uranium prices. To quote:
“You see, nuclear power is going to be a key component of the seismic shift we see coming in the energy sector ... And to help clue you in to this tremendous opportunity, we just finished our latest report on uranium.
In it you'll discover why so many new nuclear power plants are coming online, why uranium prices could skyrocket over 300% and most importantly, a tiny mining stock about to make an absolute fortune for its shareholders.”
That “tiny mining stock” was trading at $1.30 per share at the time that my peer issued that report. The report turned out to be amazingly prescient. In less than six months the share price of that mining company was trading at almost $6.00 per share. That is a gain of over 300%!
In March of 2011 the Fukushima nuclear accident slowed down the enthusiasm for nuclear power. Temporarily. That was over three years ago, and the case for nuclear and uranium is as strong, or stronger, than it was back then.
Here is an update on nuclear power, the case for uranium, and why that same “tiny mining company’s” shares are ready to take off.
Electricity generation - what are the options?
I don’t have to tell you that electricity is vital to modern life. It powers our lights and appliances at home. It powers many industry processes. It is used to power trains and to charge electric vehicles.
Globally, electricity use is rising rapidly as new major economies develop in places such as China and India.
This need for electricity drives a growing demand for electricity generation, with thousands of new power plants needed across the world over the coming decades.
Every form of electricity generation has its strengths and weaknesses. As the global demand for electricity is rising, and future electricity generation will need a range of options, they must be low carbon if greenhouse gas emissions are to be reduced. Nuclear generation provides reliable supplies of electricity, with very low carbon emissions and relatively small amounts of waste that can be safely stored and eventually disposed of.
Take a look at this Greenhouse Gas Emissions table:
The fuel for nuclear power is a metal called uranium.
I could tell you some interesting facts about uranium, such as:
- Uranium is a silvery-gray metallic chemical element in the actinide series of the periodic table that has the symbol U and atomic number 92.
- Uranium has the highest atomic weight of the naturally occurring elements.
- Uranium is approximately 70% denser than lead, but not as dense as gold or tungsten.
- It is weakly radioactive.
- It occurs naturally in low concentrations (a few parts per million) in soil, rock and water.
“Uranium” used in the context of nuclear power refers to U3O8. "U3O8", also called yellowcake, is triuranium octoxide produced from uranium ore and is the most actively traded uranium-related commodity. Its primary use is as fuel for nuclear reactors.
U3O8 is one of the most kinetically and thermodynamically stable forms of uranium and it is the form of uranium found in nature.
U3O8 or Yellowcake
But here is why uranium is an important commodity:
Uranium is composed primarily of two isotopes, the more abundant U-238 (99.3%) and the more valuable U-235 (0.7%). It is the U-235 that has the atomic structure that makes it a prime candidate for the fission process that powers nuclear reactors.
A nuclear reactor produces and controls the release of energy from splitting the atoms of uranium. Several hundred fuel assemblies containing thousands of small pellets of ceramic uranium oxide fuel make up the core of a reactor. For a reactor with an output of 1000 megawatts (MWe), the core would contain about 75 tonnes of enriched uranium.
In the reactor core the U-235 isotope fissions or splits, producing a lot of heat in a continuous process called a chain reaction. Uranium-fuelled nuclear power is a clean and efficient way of boiling water to make steam which drives turbine generators.
Two examples of fission of a Uranium-235 atom
To maintain efficient reactor performance, about one-third or half of the used fuel is removed every year or two, to be replaced with fresh fuel.
Nuclear energy's contribution to global electricity supply
Nuclear energy supplies some 11% of the world's electricity. Today 30 countries use nuclear energy to generate up to three quarters of their electricity, and a substantial number of these depend on it for one-quarter to one-third of their supply.
Today a global population of 6.6 billion is rising toward 9 billion by 2050, as energy demand grows explosively to meet human needs and aspirations worldwide. The current path is unsustainable. The UN panel composed of the world’s leading Earth scientists (IPCC) warns that global greenhouse gas (GHG) emissions must, by 2050, be cut by 70% to avert catastrophic change in our planet’s climate system.
But the central task must be a global transformation in energy - because most GHGs come from the use of fossil fuels. The crucial challenge in GHG curtailment is to decarbonize an ever-expanding worldwide energy system.
Did you know...? A single uranium fuel pellet contains as much energy as 480 cubic metres of natural gas, 807 kilos of coal or 149 gallons of oil.
So … that’s where nuclear power comes in.
In our growing world, nuclear power is the only practical solution to bridge the energy supply gap.
Nuclear power is going to be an integral part of our future. In America it already is, but I believe it will become even more so. It’s not a matter of if... it’s a matter of when. And as nuclear power takes off, so will the market for uranium.
Take a look at the chart below:
Currently there are 435 operable reactors, 72 under construction, 174 planned and 299 proposed as of August 2014, according to the World Nuclear Association. As the number of operable reactors doubles by 2030, so will the demand for uranium.
Nuclear power is a global growth story. Emerging nations from India with 21 reactors and 63 in the works to South Korea with 23 reactors and 11 in the works all need nuclear energy to power future generations. It's interesting to note that oil rich nations like Russia with 33 reactors and 59 in the works, to Middle East nations such as the UAE with 14 in the works, to even Saudi Arabia with 16 reactors planned, are all proposing nuclear power.
The real growth story for nuclear power and uranium is China, with 20 operable reactors, 29 under construction, 59 planned and 118 proposed. That's 226 potential reactors, which works out to more than half of the world's current operable reactors in just one country!
And these new reactors will use thousands of tons of uranium every year.
There simply isn’t enough uranium being mined to meet rising demand.
Over the next decade, experts predict a shortfall of over 260 million pounds in uranium. In less than a decade global uranium consumption is expected to increase from 170 million pounds to around 260 million pounds per year. The world currently mines less than it consumes, and for the past 20 years has depended on recycled uranium from Russian warheads to fill the supply gap. This HEU program ended last year, removing 24 million pounds per year from the market.
Many large uranium mines have closed and expansion plans have been cancelled due to low U3O8 prices; most are not economical until uranium prices more than double. When this happens it will still take years to restart these mines.
This all points to severe supply shortages that could last for years. Uranium prices are already known for their extreme spikes, as you can see from this 10-year U3O8 price chart below.
Bottom line, uranium prices are expected to go up.
With uranium prices slated to rise in the coming two years, what's the best way to play it? Because uranium stocks typically rise several times faster than the rate of the underlying uranium price, my money is on uranium stocks.
So you’ll definitely want to start adding exposure to uranium stocks.
How To Make Money From The Coming Boom In Uranium Prices
Remember that “tiny mining stock” I mentioned earlier? The company is called Uranerz Energy Corporation (NYSE MKT: URZ; TSX: URZ). URZ rewarded investors with a gain of over 300% the last time the uranium price shot up to $70 per pound.
URZ is a uranium producing company which acquires and develops uranium properties. The company is focused on the exploitation of its properties in the Power River Basin area of Wyoming. The Power River Basin properties held by URZ cover nearly 80,000 acres of land. And needless to say, it’s loaded with uranium.
In fact, several other major uranium miners own property in the Power River Basin. Cameco and Uranium One, two of the largest ISR uranium mining companies in the world, are continuing to extract uranium near the URZ properties in the Powder River Basin. But URZ owns one of the most significant land holdings in this area.
So what makes the uranium in the Power River Basin so special? You don’t have to go underground to get it.
It’s mined using a process called In Situ Recovery (ISR). With ISR mining, wells are drilled into the areas containing the uranium deposit. Ground water fortified with benign oxidizing agents is pumped into the deposits (“in-situ”) to dissolve the contained uranium. The dissolved uranium is then pumped to the surface in the water. From there it can be processed into yellowcake (and prepared as fuel for nuclear reactors).
There are several benefits to ISR mining.
There is no moving or crushing of any rock. Without the need for all the heavy mining equipment, capital costs are low. And the process itself can have low operating costs. What’s more, ISR mining requires minimal labor and is much more environmentally friendly than conventional mining.
So here’s the deal …
URZ commenced uranium mining operations in April of this year at its wholly-owned Nichols Ranch ISR Uranium Project, located in the Powder River Basin of Wyoming, U.S.A. The start of mining operations represents the achievement of a major milestone for the Company as its Nichols Ranch mine becomes the newest uranium mine in North America!
URZ joins a small global group of only six publicly-traded, uranium-focused producers in the world. URZ has commenced uranium mining just before the uranium price is expected to move dramatically.
But it gets better …
With domestic security of supply of uranium becoming an increasingly important issue for U.S. nuclear utilities, domestic producers of U3O8 may once again command a premium for its domestically mined uranium.
The United States continues to be the largest market in the world for uranium with the largest nuclear fleet of any country. U.S. uranium mines produce approximately four million pounds of U3O8 per year, but U.S. annual uranium consumption far exceeds that at over 50 million pounds.
Those market dynamics have allowed URZ to enter into long-term uranium sales contracts for a portion of its planned production, negotiated at a time when the long term price of uranium was significantly higher than the current market. These contracts should provide a solid base for future product sales growth as the URZ Powder River Basin projects are developed. URZ shares are ready to take off; Uranium prices should go much higher.
In 2007 we saw uranium prices hit $140 a pound. And from mid-2010 to early 2011 the uranium price moved from $40 to just over $70 per pound. That’s more than double where the spot uranium price is today.
Take a look at the chart below of the URZ share price when the spot uranium price moves up:
As you can see from the chart, URZ shares are highly leveraged to the spot price of uranium.
In the 2007 uranium price spike, URZ shares hit a frenzied high of over $7. That’s over 500% higher than the current price. When the uranium price moved up to $70 per pound in 2011, URZ shares hit a high of almost $6. And during both those periods, the company was several years away from producing any uranium.
Today, the company is operating the newest uranium mine in America. Imagine what URZ shares could do the next time uranium prices skyrocket …
Of course, it’s great news for shareholders of URZ. But you need to own a lottery ticket to win the lottery; you need to own the shares before the price of uranium moves. Otherwise, it could be too late. Consider adding URZ to your portfolio and get ready for the rise of nuclear power.
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