After Fukushima disaster on March 11, 2011, the nuclear sector has been battered by investors as increased regulatory risk and phase-out programmes from several countries (Germany, Switzerland, .... ) could pose a paradigm change in the generation mix of developed countries.
Emerging countries seem to be less concerned about tail-risks associated with nuclear plants (Hungary & Czech vs Austria & Germany).
The ETF for uranium miners, Global X Uranium, URA (closing 2011 at $ 8.1) has been among the worst performing ETFs in 2011. Nonetheless, 2012 and 2013 could be the years to see a come back of uranium, triggered by the destocking of the Russian military reserves and the c. 55 million lbs gap between supply and demand.
More info can be found in this article.
Uranium U3O8 has finished 2011 trading at $ 51.75 in the spot market (see graph). These levels are not much higher than the production costs and make the development of many projects unprofitable. Worldwide production is 130 m lbs, short of the ww demand of 180 / 190 m lbs required to fuel the 443 reactors currently in use; of which 104 are in the US; and 11 of will cease to operate as a consequence of political decisions taken in Germany and Japan sparked by the Fukushima accident.
If we combine these factors with the end of the Russian military stockpiles of HEU treatment carried out by Cameco, we can already envisage a much tighter uranium market in 2012 / 2013.
Furthermore, China, India, ... have .... reactors planned /
62 reactors are currently under construction.
The long-term demographic and economic (ie increased energy consumption) trends are supporters of high uranium demand in the future. And our expectation is that this demand will drive uranium prices significantly up, since the supply side is much more constrained.
Risks
... to the investment case could come from an increased momentum in the anti-nuclear policies, worse news-flow from Japan (e.g. EPA has closed down the US monitoring stations), and a long-term substitution trend towards Thorium -a byproduct in the processing of rare earth elements.
China, Japan and some other countries are increasing their efforts to develop nuclear energy using thorium because it is safer the mineral per se, and the reactors are also safer. Besides, it is x400 times more availability than Uranium.
... but even if there would a clear switch towards thorium, with 400+ operating plants the needs of uranium won't decrease, as reactors were made to last 40+ years, and some could be extended for as long as 100 years.
Gaining risk exposure
can be achieved via market-wide ETFs like Global X Uranium, URA ($8/sh) which owns established and mature producers like Cameco, Denison Mines but also junior producers like Fission (which has high grade -good quality- mines), Strathmore and / or Ur-Energy ($0.85/sh).
Most of these companies are based in the US or Canada, which reduces significantly the political / regulatory and economic risks.
Favorite picks:
Uranium Energy Corporation - UEC at $3.06/share; 231m; fwPE 15
Uranerz Energy - URZ at 1.82; 140m; fwPE 36
Ur-Energy - URG at 0.86; 89m
Uranium one - UUU, 3Q2011 webcast;
Cameco - CCJ at $18/share; 7.12bn; PE 15
known unkowns:
is the uranium market affected by the electricity prices?
... I am not an expert in this field, but I would assume that no, only in the very long run (ie 10+y).
My thesis is based on the lengthy construction process of a nuclear plant, and the no optionality in the degree of operations of a reactor (ie either they work at full capacity or they don't work). Therefore, I assume that the operations are not affected by the supply/demand of energy. ie, as long as they are in OK conditions, they will operate at full capacity, and therefore demand of uranium is very unelastic (at least in what concerns the energy prices).
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