I’ve been pounding the table on uranium for some time now.
Over history, investors who have made the biggest gains have shown time and again that you need to buy when everyone else is selling. You need to buy what everyone else hates. You need to buy what no one else will.
And ever since the earthquake-induced disaster at the Fukushima Daiichi nuclear plant, there have been few admirers of nuclear and uranium, and even fewer buyers.
Indeed, though they had already been sliding from their June 2007 cycle highs near $137 per pound — spurred by the flooding of the Cigar Lake Mine — after the tsunami and subsequent shuttering of all 48 reactors in Japan, the bid simply disappeared from under uranium spot prices.
Ultimately, uranium spot prices fell all the way to $28 per pound this past summer, a level not seen since May 2005.
Uranium prices at these levels are unsustainable. They must go higher.
When they do, uranium stocks will move much higher as well. And the companies with proven deposits boasting high grades and shallow depths will move higher by many multiples.
That’s the natural cycle of things. You just have to be aware of it and be willing to buy a hated sector in anticipation of the profit cycle changing direction.
History to Repeat
For example, when uranium prices spiked over 400% from 2005 through 2008, junior uranium miners and exploration companies added as many percentage points, or better.
Again, when uranium spot price rebounded by 47% in 2010 and 2011, uranium mining stocks soared even higher.
Now, we’re on the verge of the cycle turning over once more.
2015: Uranium Profit Cycle?
I honestly don’t know when the momentum will truly shift. I just know it has to, or utilities won’t be able to sustain 14% of global electricity production.
Chairman of Sprott U.S. Holdings and legendary resource investor Rick Rule put it bluntly in an interview with CEO.CA alongside Sprott’s Vancouver Natural Resources Symposium in July:
When I look at a theme now like uranium, I am perfectly comfortable with the fact that it might take 5 years to be right. I have come to learn that asking myself investment questions where the answer begins with when, not if, is a very good trade.
In the uranium business now, industry costs including cost of capital is about $70, so you produce for $70 and sell it for $30 and lose $40. You cannibalize existing capital in corporate vehicles and that goes on until they go broke, and then the price shoots just like it did last decade. That’s a question that begins with when. When does the dam break? It’s not if. Does the price of uranium go up or do the lights go out?
With no Japanese demand and high supply from decommissioned nuclear warheads, nobody wanted to be the first to buy.
That’s starting to change.
Exelon (NYSE: EXC) is the largest nuclear utility in the U.S., which is the largest nuclear power market in the world. It recently started buying large quantities of uranium at the bottom of the market.
That goaded buying interest in other utilities like Southern, Duke, and FPL.
As a result, uranium spot prices have now surged 40% off their summer lows of $28/lb to nearly $40/lb.
And can you guess what uranium stocks are doing?
