Published on Tuesday February 12 2013 (AEST)
In the last 20 years the price of uranium has risen from 20 dollars up to 130 dollars, and dropped back down to 40 dollars, where it is now. It’s been all over the map. It is also one of the most useful natural resource commodities.
The energy density – how much energy you can produce per pound — is much greater than with other energy sources available. Water, natural gas, oil, or coal, don’t pack as much punch per pound. In some senses, it is the most efficient energy source in the world. Nations can store enough material to run plants for decades. In case of crisis, it is the most strategic energy source on the planet.
Countries like Japan, Korea, Taiwan, or Singapore are energy and storage-constrained, yet have high per capita energy use. For them, uranium is vital.
How To Play It
As you know, doubling the price of uranium would more than double profit margins for those that produce it already. Therefore, the companies that explore for and produce the metal should do well, in addition to the commodity itself.
Right now, uranium is a deeply unloved resource. As we have seen, it’s unloved for a variety of reasons. When you think about nuclear, you don’t think about a light going on; you think of Hiroshima, Chernobyl, Nagasaki, or 3 Mile Island.
But uranium is an essential commodity for the world to continue to enjoy the way of life that we experience now, which is energy intensive. Uranium suffered a price drop that the investment community thinks is an ongoing fact, but that is actually a one-off event. What happened in Fukushima, while tragic, will not alter the demand for uranium in the long term.
Uranium prices are set for a turnaround. As the idled power capacity comes back online, and the impact of Japanese selling is reversed, the market will return to pricing equilibrium, which we believe is around 80 to 85 dollars a pound. This is of course a wonderful move from the current price of 40 to 45 dollars per pound – and music to the ears of those that produce it.