Monday, March 14, 2011

Uranium Prices

Uranium is a misunderstood element.  The yellow material holds the key to the world's coming energy woes.  Some research on Peak Oil would be wise at this point.  Solar, wind, tidal and other popular energy alternatives are merely pet projects and will never provide more than 5% of the worlds energy.  Also, these can not be produced without heavy rare earth elements, a subject we continue to shout about but deaf ears refuse to listen.

China's current pipeline of reactors coming online alone creates enough demand to shock the fragile supply chain in it's current form.  After a speculative run-up in the last decade to nearly $140/lb a massive sell-off ensued ending in a more than 2yr stall around the $40/lb mark.  Summer of 2010 marked a firm bottom and capitulation as prices began to rise when major Canadian producers were able to purchase surplus material on the spot market to meet rising demand for contract delivery.

Here is a chart of this confirmed breakout move.
Ux U3O8 Price ©
Currently US Government Energy interests are selling material onto the spot market.  This will be viewed as foolish within the next 18 months as we have a firm target of $100/lb for U308 in that time period.  While we are confident about our target we do expect the per/lb price to eventually exceed that level.

The best way to trade this trend is by purchasing a basket of uranium mining stocks.  Anchor your basket with 1/3rd blue chips and let the other 2/3rd take you on a ride as the true economics of this situation are realized and accepted.  There will be spectacular profits in this space because popular opinion is so drastically out of sync with economic reality.  When this is the case it makes for a lonely trade.  When you are in a lonely trade the reward will be super-sized profits since you are first to the party.

If you are under the impression that only the "Environmentally Reckless" Chinese will use nuclear sources of fuel then get used to competing with an enemy who has access to energy at 20% of your cost.  Economics always wins in the battle against emotionally charged public opinion.

Just a quick warning......videos like this one of a reactor exploding can be harmful to your junior uranium miner's market capitalization.

Try to use logic rather than emotion.  Also, try to focus on economics first then use swings in popular opinion to take advantage of buying opportunities.  This event will mark another bottom in the price of uranium and the mining companies that produce it.

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