Nuclear power is a unique technology, and suppliers of the magic dirt that powers reactors are still trying to shake the demand drop from last year…and some are looking very good indeed, observes David Chapman of Investor’s Digest of Canada.
It was just over a year ago that the disaster at Japan’s Fukushima nuclear power plant made headlines around the world. Hit by the tsunami that struck Japan, the electric generating facility not only went into partial meltdown, but released radioactive material into the air as well.
In sum, it was a disaster—indeed, the worst nuclear disaster anywhere since the meltdown of the Chernobyl reactor in the Ukraine back in April 1986. Not surprisingly, uranium fell sharply, tumbling by about $20 a pound before bottoming out around $50 last September. Since then, its price has stabilized.
Still, the metal has undergone some wild price swings over the years, touching $7 a pound back in 2001—the victim of both oversupply and falling demand. But when oil rose to $147 a barrel, uranium climbed in tandem on the expectation of increased demand for atomic power.
Uranium then peaked at around $137, in what many believed was a bubble. It was. The metal subsequently fell to $40 by 2010, only to climb back to $70 before Fukushima.
Uranium, once enriched, is mainly used in atomic warheads and nuclear power plants, although the latter is the top user. It’s also used as shielding—a use that results in depleted uranium, which unfortunately has a long and dangerous life. Indeed, depleted uranium left behind in Iraq by US forces has been shown to increase the incidence of cancer and sterility.
Elsewhere in the Middle East, Iran’s program of uranium enrichment is being watched closely as some observers fear—without foundation—that Tehran is on the verge of producing nuclear arms. Meanwhile, North Korea, which has also made headlines with its enrichment program, has actually succeeded in producing a few low-level nuclear bombs.
The world’s biggest uranium producers are Canada and Australia, which account for 28 and 23% of output, respectively. Other big producers are Kazakhstan, Russia, and Niger.
As of March 2012, there were 436 or so nuclear power plants in 30 different countries helping to keep the lights on. Another 65 plants are now under construction. Nuclear power itself probably accounts for 13.5% of global electricity production, while in France the number is 77%. Still, the US generates the most nuclear energy.
Ironically, according to several reports, uranium is in short supply. In fact, miners are producing 40 million pounds less than what’s now needed to run all the world’s power plants at full tilt.
China Gearing Up
In addition, several countries want to boost their generating capacity. Although China, for example, produces a little over one-tenth of what the US generates, it plans to build another 50 plants on top of the 15 it operates, along with the 25 it’s now building.
Indeed, Beijing, which is looking to Canada for uranium, is reportedly interested in buying Canadian uranium mines. For its part, Japan now wants to get its nuclear power program back on track, while Eastern Europe is looking to boost its nuclear generating capacity. Germany, though, is cutting back on atomic power.
Uranium producers, as might be expected, took a beating following Fukushima, with many having yet to recover. As a result, uranium stocks remain undervalued.
Canada’s top uranium miner is Cameco (CCJ). Headquartered in Saskatoon, Cameco operates in four areas: fuel services, electricity, gold, and, of course, uranium. Cameco, which runs roughly 16% of the world’s uranium mines, boasts 480 million tons of proven and probable resources.
Its major mine—Cigar Lake in northern Saskatchewan—has been shut down for the past few years because of flooding. But it’s now slated to be up and running again in 2013. Cameco’s Rabbit Lake mine, in production since 1975, is the second biggest uranium milling facility in the Western world, as well as the longest-operating uranium production facility in Saskatchewan.
All told, Cameco and its five biggest rivals now account for a whopping 70% of global uranium production.
One of those five companies is Uranium One (Toronto: UUU). Headquartered in Toronto, it was bought by UrAsia Energy in 2007 in a reverse merger. Through its subsidiaries, Uranium One operates, buys, explores, and develops uranium, as well as gold and properties.
Uranium Participation (Toronto: U), also Toronto-based, is a holding company that invests in uranium producers—particularly small- and micro-cap ones. Offering an easy way to invest without having to pick a particular stock, the company trades at a discount of roughly $1.50 a share to its net asset value.
A closed-end fund, Uranium Participation is actually managed by another uranium producer, storied Denison Mines (Toronto: DML), long a major player in the Canadian uranium industry.
Another uranium miner worth considering is ESO Uranium (Toronto: ESO). A small cap headquartered in Vancouver, ESO owns 225,000 acres in Saskatchewan’s Athabasca Basin, as well as a gold company in British Columbia’s Monashee Mountains.
ESO also boasts gold exploration acreage in northeastern Ontario, along with both lithium and borax holdings in Nevada—properties that hold considerable promise of rare earths.
CanAlaska Uranium (Toronto: CVV), also Vancouver-based, is yet another small-cap worth looking at. Active as well in the Athabasca Basin, CanAlaska recently completed a non-brokered share financing for $898,000.
CanAlaska would also appear to be well-heeled. Not only has Japan’s Mitsubishi taken a 50 % stake in the company’s West MacArthur project, but Korea’s Hanwha Group owns a 50% share in CanAlaska’s Cree East site.
All told, CanAlaska has roughly 15 projects now on the go in the Athabasca Basin, many of which hold promise of having considerable potential.