Why Uranium's Future Will Burn Bright


Urainum will never take center stage so long as the world continues to guzzle down millions of barrels of oil per day.  Indeed, for much of its economic history uranium played the part of small fry, existing in sufficient quantities throughout much of the world without gaining much more than moderate increases in demand.  Like other commodities, uranium enjoyed a white-hot performance during the course of the global economic recession, tripling in price from 2006 to 2007 to reach a high point of $135 per pound and providing one of the best pay days for investors who bought up the metal at a low point.  Since then, uranium has been on a one-way trip down to the bottom of the investment barrel and today trades at the Nuexco Spot Exchange for just under $36 per pound.  Several factors make uranium a solid long-term strategy for the next few years, however, not in the least due to the very important uranium deficit, expected to kick in by 2020.  How does this radioactive source of nuclear fuel offer good growth for your portfolio?

Concentration and Location

You can search far and wide for certain metals like palladium but only find them in particular spots around the world.  Uranium enjoys different levels of decay, which in turn affect the performance of a nuclear power plant, but as an element appears more commonly in our Earth's soil than almost all base metals.  There's about forty times as much uranium on Earth than silver, making it affordable on the one hand and relatively easy to mine on the other.  The reason why Canada leads all nations in uranium mining, as such, lies in the nation's abundant open spaces rather than an unusually high quantity of the radioactive metal.  The Cameco Corporation (CCJ on the NYSE trading for $15.51 a share) based out of Saskatchewan controls nearly fifteen percent of all uranium on the market.  Despite the downturn in the cost of uranium, the biggest fish in the pond hasn't hesitated to expand their operations.  Cameco's new investment in the Canadian Cigar Lake mine makes it the largest high grade uranium deposit in the entire world, expected to pull in over a quarter of a million pounds per year.  Their decision to put more capital into a seemingly-declining commodity stems from one very important number: 2020, the date that the uranium deficit kicks in and draws new lines for the world's energy consumption.

A Deficit In Need

Just as there's a far greater supply of petroleum beneath the soil of our planet Earth than is easily available for drilling, so too does uranium exist in pockets that remain difficult to find.  Uranium extraction, like oil extraction, will one day reach a hypothetical point where the resource becomes tapped at existing mines and requires comprehensive surveys to find new sources.  While oil wells have lifelines that may range as far as a century, uranium becomes depleted far more quickly.  The impending gulf between available supply and the world's demand for nuclear fuel will come to a head between 2018 and 2020, with separate mining companies maintaining separate estimates for the exact date.  Most agree that in order to overcome the shortfall, uranium companies need to mine when the metal sits at about $75 to $80 per pound, double the current trade price.  If the price doesn't rise soon enough to mitigate the shortfall, it will when the drastic decline in supply forces the remaining nuclear fuel consumers to pull out their wallets for an increasingly rare product.

Push and Pull

If there's such a massive breakwater on the horizon, why haven't all investors jumped into the uranium boat and followed it down the current?  For starters, no other metal has a spot market as thin as that of uranium.  While anywhere from 100,000 to 200,000 gold contracts change hands each day on the futures market, uranium is lucky to see over one thousand on any given day.  That number has climbed in 2015 as a few nations, most notably Japan, have pushed more reactors online and created higher demand for uranium.  Overall, however, it's mostly the utility needs that have been snapping up uranium rather than investors, with only about ten percent of the fuel requirements in 2016 having been claimed.  As the price of coal has dropped over the past five years, furthermore, competing energy interests have kept anyone from giving a second look at uranium for commercial purposes.  That's great news for investors who have the chance to buy in at the low point and ride uranium to its deficit breaking point within the next half decade.

Radioactive Results

For short-term growth, uranium offers little in the way of appeal to the average investor.  The metal likely hasn't hit its lowest point yet due to the opening of new mines in Canada and the United States funded by capital investors looking for energy solutions that return better profit than oil.  Such new mines aren't enough to bridge the all-important uranium deficit, however, making them capable of merely buying time.  Uranium must react to the overwhelming force of market supply just as a dying star must react to the overwhelming force of nuclear fusion (which, ironically, creates uranium in the process).  Once the world's supply of uranium reaches the low point, prices will explode as dozens of nations in need of nuclear fuel compete to snap up the supply left on the market.  Without a breakthrough for enriching supply or recycling uranium (both unlikely in the immediate future), the growth potential of uranium appears better than fossil fuels in the long term.  Uranium commodities represent growth opportunities but will likely take at least half a decade in order to show value.  Investors who prefer not to spend and wait won't get much from this black-and-green metal, but those with good patience have the chance to get in at a very favorable price tag.

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