Uranium demand is set to outstrip supply, so investors should find companies that mine the element and go long, says the CEO of one of those companies.
David R. Miller, CEO and director of uranium miner Strathmore Minerals, which produces uranium in Wyoming and in New Mexico, says demand is growing and will continue to do so from plants due to come online in China.
"The demand is there. The supply is actually still there in the short term but the long-term demand is forecasting ever-increasing shortages in uranium," Miller told Moneynews in an exclusive interview.
"Right now the price is around $52 for the short-term price. The long-term price is like $64 or $65 per pound. I see it as gradually increasing."
|David R. Miller
(Strathmore file photo)
Uranium producers tend to sell the element through contracts.
"My guess is they are signing contracts in the mid-60s to mid-70s right now."
Investors can get in on the uranium market by buying stock in producers of the element, since the element doesn't trade on exchanges like other commodities such as oil, wheat or gold.
A recent tragedy at a nuclear power plant in France wasn't the result of a nuclear-specific problem but rather, an industrial incident that led to a blast that killed one person.
The earthquake and tsunamis in Japan, however, did bruise uranium prices on fears that nuclear energy would fall out of global favor on news of the scope of damage inflicted to the Fukushima Dai-Ichi Nuclear Power Plant.
"Prior to Fukushima, they were about up to $70 a pound on the short-term spot price, and with Fukushima, of course, they dropped. They hit a low of about $48 a couple of weeks ago and now they have bounced back a little bit to $51."
The element will go up in price due to basic economics: demand will outstrip supply.
"The need for new uranium for just the existing 430-some-odd nuclear power plants around the world is there without building one more nuclear power plant. And there's something like 62 under construction right now, with about half of those in China."
China relies heavily on burning coal to produce its power, which pollutes the environment and creates a market for dangerous mining conditions, Miller says.
Total demand today for uranium hovers somewhere between 170 million and 180 million pounds per year. The worldwide production of uranium, meanwhile, stands at around 130 million pounds a year.
"So right now, without building one more nuclear power plant, we have an annual shortage of about 50 million pounds of uranium."
Glut wears away
A decades-old problem with uranium supply is coming to an end.
In the 1970s through the 1990s, plans were made to build around 250 new nuclear plants but in the end, only 104 of those were ever built.
Of the remaining 150 or so that hit the drawing board but never broke ground, companies still made plans to purchase uranium.
The result, a supply glut that turned uranium into a buyer's market and the U.S. uranium industry all but disappeared.
Today, all that built up inventory is running out, and the wise investor knows when demand increases for a resource that isn't on the increase, the time to buy is now.
"That's why uranium is trying to be normal commodity," Miller says.
"If you look at a price chart over uranium sales over the last 10 years, you'll see in 2001 to 2004, uranium was less than $10 a pound. If you go back to 1990 or even 1980, you'll see that it kind of varied between $10 and $20 a pound during that time frame," he said. "Then in 2004 and 2005 and peaking in 2007, it went up all the way to $138. It came right back down after that because there was too much of an increase in price in too short a time."
Still, the trend is upward.
"I think this is the turnaround point. I don't think you're going to see prices below this so if you want to get in on the trend, now is a great time to do it," Miller says.
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