Replies to post #1035 on Stocks That Glow! Uranium Plays

[sumisu]

Uranium getting close to $100 a pound

(by Sean Brodrick)

3/28/2007 8:00:00 AM

The price of uranium is jumping again! This week, the white-hot metal went from $91 to $95 a pound, according to TradeTech’s Nuclear Market Review. Remember, this metal was trading at just $75 per pound in January … $55 in October … and $45 last July. That’s a ferocious uptrend!

We’re in undiscovered country now. Heck, my 2007 target was $100 per pound and now it looks like we might hit that by April! Where do things level off?

Sprott Asset Management analyst Kevin Bambrough has said that a sustained supply deficit could cause uranium prices to spike north of $500 per pound by 2015. To be sure, Bambrough doesn’t believe $500 uranium would be sustainable.

I agree it’s hard to come to grips with $500-a-pound uranium, but my analysis shows that such a price might very well be sustainable. Here’s why …

Pound for Pound, Uranium
Packs More Power Than Fossils

The cost of uranium makes up a very small portion of the cost of electricity from a nuclear power plant. The cost of coal or natural gas, in contrast, makes up a far larger share of the cost of producing electricity.



For example, if the price of natural gas doubles, the cost of electricity from a gas-powered plant would increase by about 40%. But if the price of uranium doubles, electricity from a nuclear power plant would only go up about 5%.

Let me show you why that is …

The uranium used in nuclear power plants comes in pellets. Typically, a pellet of uranium weighs around seven grams or 0.24 ounces. This pellet is capable of generating as much energy as three and a half barrels of oil.

At $60 a barrel, you’d need to spend $210 for oil. On the other hand, it costs around $1.43 to buy 0.24 ounces of uranium at the current price of $95 per pound.

See, the price of uranium has doubled in the last year and it’s still dirt cheap when you look at how much energy it produces.

Even if uranium goes to $500 per pound, that would only raise the cost of a uranium pellet to about $7.50 — not even close to the cost of an energy-equivalent amount of oil today.

Bottom line: In the context of rising fossil fuel prices, $500 per pound for uranium actually might be sustainable.

But let’s be a little more conservative and look at it another way …

What If We Treated Uranium
Like a Precious Metal?

One thing we might do is start pricing uranium in ounces, rather than pounds. Measured in troy ounces (like precious metals), uranium now trades at $6.51 per ounce. Meanwhile, silver, another metal with a lot of industrial uses but without the energy component, trades at $13.40 per ounce.

Now, nobody’s going to walk around wearing uranium jewelry (I hope!), but here’s my point: The price of uranium would have to double just to trade on par with silver. I think that would be fair since uranium is at least as inherently valuable as silver.

Moreover, I think the price of silver is going to $20 per troy ounce. If uranium kept pace, that would spell a price of $284 per pound!

None of this is going to happen overnight, and nothing travels in a straight line, so expect ups and downs along the way. But all signs point to higher uranium prices down the road.

Just based on historical prices, uranium is a long way from its inflation-adjusted high of $140 per pound. And the supply/demand squeeze has the potential to easily push the price of the white-hot metal beyond that target, too.

Demand Increasing Exponentially,
Even Though Supplies Are Lagging

There are huge forces ramping up demand for uranium. And new supply just isn’t there. Heck, despite the 99% increase in uranium prices last year, production from mines actually fell 5% from a year earlier.

More than 100 nuclear reactors are under construction or in the planning stages, a huge 25% increase over the number of existing reactors. Japan’s planning 11 … China’s working on 30 … and India and Russia are each going to build 20.

So far, the U.S. is planning a handful of new nuke plants. However, in my opinion, U.S. utilities are totally blowing it when it comes to securing their future uranium supplies, especially in the face of soaring prices.

Once they decide to build a nuclear facility, utilities have to secure their fuel supply for up to six years out. But people in the industry tell me that U.S. utilities have done practically nothing in this department!

I believe that by the time they decide to follow the path already well-trod by the world’s other major uranium consumers, they are going to pay a lot more than $100 per pound.

http://www.moneyandmarkets.com/press.asp?rls_id=733&cat_id=6

[sumisu]

stuffit,

It wouldn't hurt others to look at the outline of the GAO report. It's good to know the energy terrain under Peak Oil and intuitively why it is wise to invest in uranium.

My prior post to you was related by word to me and then I found an article to substantiate his opinion. Now I'm not so scared of the uranium price crashing, as [1] "The cost of uranium makes up a very small portion of the cost of electricity from a nuclear power plant" and [2] "utilities have to secure their fuel supply for up to six years out."

While my uranium position is still rather small, it has doubled in the last month.

My thanks to all who have provided their DD.

sumisu