Northwestern Mineral Ventures, Inc. (fka NWTMF)

[stockguard]

Myra Saefong's Commodities Corner

Uranium's poised for more powerful gains
By Myra P. Saefong, MarketWatch
Last Update: Oct 20, 2006

SAN FRANCISCO (MarketWatch) -- As the world seeks alternatives to oil as a source of energy, uranium has been on a tear, scoring a gain of around 700% in six years as interest in nuclear power has revived.
"Uranium's performance has been in a league of its own," said Scott Wright, an analyst at financial-services company, Zeal LLC.
Uranium has been one of the best-performing commodities in this bull market, he said. Spot prices are trading at around $56 a pound, an eight-fold increase from as low as $7 back in 2000. See the latest uranium prices. "And the way fundamentals look today, there could be a lot more room to run," said Wright. Crude and gold prices have seen strong gains, but they pale in comparison to uranium. Over the last six years, crude futures are up around 90% and gold futures prices have more than doubled.

The biggest reason for uranium's rise? Simply put: supply scarcity.
Short on supply Uranium, a radioactive heavy metal that's the basic material for nuclear technology, is actually more common than silver, according to the U.S. Energy Dept. But the market for it is suffering from a supply and demand squeeze. "For more than 10 years, the nuclear-power industry has consumed more uranium than has been mined," said Lawrence Roulston, editor of Resource Opportunities, an independent investment newsletter.

World consumption was pegged at 171 million pounds last year and global supplies were estimated at about 102.5 million pounds, according to Sean Brodrick, contributing editor of MoneyandMarkets.com. The difference of more than 60 million pounds has been met mostly by using highly-enriched uranium from Russia's nuclear weapons that were being decommissioned, he said. But "we are fast reaching the end-game on that source. "In fact, the end to the above-ground supply will come before there is time to develop significant new mine supplies, said Roulston.

Exacerbating the problem, now that nuclear energy is in vogue again, the growing pipeline of reactors coming online in the next decade will substantially add to the overall demand for uranium, said Wright.
"As stockpiles dwindle, people are starting to see the writing on the wall that there will likely be several decades of mined supply deficits for this metal," he said.

A key fuel

Uranium is the key fuel for nuclear energy which remains the proven alternative to oil and coal for creating electricity.
"Nuclear energy has become a very acceptable alternative to the fossil fuels that power the globe today and uranium is the commodity poised to shoulder this drive," said Wright. 'For more than 10 years, the nuclear-power industry has consumed more uranium than has been mined.'
— Lawrence Roulston, Resource Opportunities "Unlike many of the alternate energy plays out there, nuclear energy is proven to work on a mass scale," he said, pointing out that 16% of the world's electricity is generated from it.

Nuclear power is "getting cheaper and safer," said Brodrick, and operating a nuclear plant produces zero greenhouse gases, compared with the average coal plant's release of 3.7 million tons of carbon dioxide every year. Read his recent report on nuclear energy.
In addition, nuclear energy offers a means for countries to take control of their own destiny. "Right now, OPEC has us over a barrel," Brodrick said, referring to the Organization of the Petroleum Exporting Countries, whose members produce about 43% of the world's crude oil.

While nuclear power can't replace oil, it can "be a much larger part of our energy picture," he said. The U.S. was once the world's largest producer of uranium and uranium mines in the nation is gearing up again, he said.

Countries boost spending

The U.S. gets about 20% of its power from 103 nuclear power plants that produced 780.4 million megawatts last year -- that makes it the world's largest generator of nuclear power, said Brodrick.
Worldwide, there are 442 nuclear reactors in operation, with a total of around 250 under construction, planned or proposed, according to data from the World Nuclear Association.

It's estimated that this year, over 170 million pounds of uranium will be required to operate these reactors, said Wright. Canada has an $18 billion plan to upgrade nuclear plants and build new ones, according to Brodrick. And so far, the U.S. has earmarked $13 billion in new subsidies for nuclear power, "but I expect that to rise -- substantially too," he said.

Russia's President Vladimir Putin has targeted nuclear power's share of Russia's energy use to increase from 15% to 25% by 2030, he said. To get there, Russia would need to add 40,000 megawatts of nuclear energy each and every year, "building at least 40 new nuclear reactors by 203," Brodrick said. "Governments around the world ... are realizing they can't meet their growing energy needs through fossil fuels alone, and are embarking on very ambitious nuclear programs," he said.

Uniquely lacking a trading forum

So, it's obvious uranium can offer a unique investment opportunity. There's just one problem: you can't just buy the product -- the commodity doesn't trade on any futures exchange like oil and gold trade on the New York Mercantile Exchange. "Unlike many of the major metals, uranium has never been traded in the formal futures markets, nor has it existed on any kind of tradable commodities exchange," said Wright. It is, however, actually "traded," or exchanged, through long-term contract prices negotiated directly between the buyer and seller, he said.

Uranium producers buy uranium on the spot market "because their production is falling short of their own projections, and they are locked into contracts to deliver a certain amount of uranium to their customers," Brodrick explained. 'For the average investor, the best way to take advantage of this run in uranium is to invest or speculate in the stocks of the companies that will bring uranium to market today and tomorrow.'

— Scott Wright, Zeal LLC
And, of course, there are "strict rules about buying, selling and moving uranium," said Roulston. "The metal itself is pretty much off-limits to most investors." Rest assured, there is an alternative way to invest in this alternative energy fuel. "For the average investor, the best way to take advantage of this run in uranium is to invest or speculate in the stocks of the companies that will bring uranium to market today and tomorrow," said Wright.

There are about 300 exploration/development companies, "a few of which will be successful and generate big payoffs for investors," said Roulston. "The unique sector of stocks, the majority of which trade on the TSX Venture Exchange, has soared in recent years," said Wright. And "any publicly-traded company staking a claim on or near a potential uranium deposit has watched its stock go through the roof."
Saskatchewan-based Cameco Corp. (CCJ)Cameco Corporation is the world's biggest uranium producer and "if you want to buy one of the big names in the business, it's a good choice," said Brodrick. The company's net income jumped 358% in the latest quarter, compared to a year earlier thanks to surging uranium prices, he said.

The biggest movers, however, will be in the small- and mid-cap companies, he said. Winners among the uranium miners and producers will include those companies using realistic near-term production plans and utilizing deposits discovered previously, and exploration companies that make new discoveries that are large, high-grade and in favorable locations, Roulston said.

Traders can also invest in a mutual fund or exchange-traded fund that holds uranium, Brodrick said. There are a few of these but none are listed primarily on the U.S. exchanges. Brodrick is expecting a U.S.-based uranium ETF to eventually be launched.

For now, there's Uranium Participation Corp. (CA:U: news, chart, profile) , a Canadian fund that buys physical uranium, he said. Its common shares trade on the Toronto Stock Exchange under the symbol "U" and on the Pink Sheets in the U.S. under "URPTF."

End of Story Myra P. Saefong is a reporter for MarketWatch in San Francisco.

http://www.marketwatch.com/news/story/Story.aspx?guid=%7B2A8D6FAE%2D560D%2D4F95%2D9637%2DF4D2FFA4BA2...