Is It Time To Invest in Uranium?

Source: IAEA Imagebank / Flickr

It seems that uranium and nuclear power are universally loathed by investors, politicians, and environmental activist groups alike. Ever since the Fukushima Daiichi disaster in 2011, the price of uranium has languished, having fallen from about $70 per pound to less than $40 per pound. Governments from Europe to Japan all made capricious announcements to wind down their nuclear energy programs due to the perceived dangers of nuclear power.

But like it or not, nuclear power is an incredibly inexpensive and efficient power source, and barring some radical technological advancement, nuclear power will play a vital role in energizing the world. While popular opposition has delayed the rise of nuclear power as a global energy source, this delay was only a temporary one. Already we have seen news coming from Japan that proposed restrictions on nuclear power are being lifted.  Developing nations with rapid economic growth have plans to add nuclear reactors. China, for instance, has 17 nuclear reactors with plans to build 32 more.

Yet while demand rises, mine supply cannot meet demand. Currently there is roughly 70,000 tons of demand versus 50,000 tons of mine supply. This situation is being exacerbated due to low prices. There is essentially only one large uranium mining company in Cameco (NYSE:CCJ), and Cameco has had trouble turning a profit in the recent past.  Other larger players in the uranium complex such as Paladin Energy (OTCMKTS:PALAF) and Dennison Mines (NYSEMKT:DNN) are losing money. This situation is unsustainable. If miners cannot turn a profit mining uranium, then either the price has to rise or these companies will stop mining uranium, which will lead to a rising price.

Not only does uranium demand outpace supply in the present, but we know that this will be the case for years to come. Nuclear reactors take years — sometimes more than a decade — to go from the proposal stage to actual construction. These projects are highly regulated. The good news is that we know now that uranium demand is going to continue to rise for many years to come because so many global projects are in the pipeline.

Furthermore, we also know that there will not be any major onslaughts of uranium supply any time soon. Mining projects take years to go from the exploration phase to actual production. An oncoming need for more uranium may not be met with a mine supply increase for many years to come. This gives me further confidence in my prediction that the uranium price must rise from here.

Investors who are interested in investing in uranium have several options. First, they can buy the Global X Uranium Miners ETF “URA.” This fund has performed terribly over the past couple of years, having  fallen from its 2011 peak of over $65 per share to today’s price of $15.44 per share. The shares seem to be bottoming out, and there is technical support around $15 per share.

However, as I mentioned above, uranium mining is not profitable for most miners for the time being. Fortunately, investors have access to a uranium holding company in Uranium Participation (OTCMKTS:URPTF). This is a company managed by Dennison Mines. Its sole purpose is to hold uranium oxide and uranium hexafluoride as a way for investors to get direct exposure to the uranium market without mining risk exposure. The management fees are 1.5 percent of whatever uranium is bought or sold, and $400,000 plus 0.3 per of whatever the company holds beyond $100 million worth of uranium (right now, the market capitalization of Uranium Participation Corp. is $515 million).  Thus, this is a great way for investors to buy uranium.