The Case for Uranium

I believe that shares in uranium mining companies will be excellent investments for the next few years. The reason is simple: The age of oil is drawing to a close, and nuclear energy is the only viable alternative.

The human race can no longer continue to burn fossil fuels as our primary source of energy. Oil is a declining resource. There have been no significant new discoveries of oil anywhere in the world in decades. Eventually oil will run out, probably sooner than we think. Not tomorrow, but probably at some point in the next three or four decades.

According to the World Nuclear Association:

“One-third of humanity has no access to electricity and still another third has only limited access. Huge populations exist in dismal poverty. Each day 40,000 people – 25 per minute – die from disease that would be readily prevented by basic economic development. Economic development is imperative not only to alleviate human misery but also to create conditions necessary to stabilize global population.”

“Today, in much of the developing world, a surging drive to meet these needs is generating an enormous rise in the use of energy. By 2050, global energy consumption will double.”

“Humanity cannot go backwards. A burgeoning world population will require vast amount of energy to provide fresh water, energize factories, homes and transportation and support infrastructures for nutrition, education and heath care.”

The message is simple: people need power.

Unfortunately, there have been no new significant discoveries of oil for decades, and shortages are always in the news. (A good source is the Energy Bulletin, which contains information on the peak in the global energy supply). The supply of oil is finite, and the human race is running out of oil. In fact, the U.S. Army Corps of Engineers projects the lifetime of proven worldwide oil reserves is only about 40 years. (This is a big problem for the military, since in the event of war they need fuel for tanks and other vehicles; you can read more about it in an article in the U.S. News and World Report).

Even if we had lots of oil, we can’t keep burning it, because it’s killing us. From smog in cities to the melting of the polar ice cap, even the staunchest skeptics now agree that global warming is a real problem. (See the External Links section at the bottom of this page for more information).

Even worse, oil has become a political commodity. The oil we use in North America arrives, in large part, from places that are not particularly friendly. Even the skeptics agree that the war in Iraq is as much about oil as liberating the populace.

So what can replace oil?

It would be great if we could use solar power for all of our needs, but unfortunately the sun does not shine 24 hours per day, and we don’t yet have battery technology sufficient to store it. Wind power would also be great, but it isn’t always windy, and most people don’t want huge windmills in their backyards. Most homeowners can’t afford $30,000 to $50,000 to install a geo-thermal system, and geo-thermal energy won’t power our cars.

Fortunately, there is a solution: nuclear power. Nuclear power has three big advantages:

First, nuclear power is clean.

It produces no smog or greenhouse gases. Obviously it does produce radioactive waste, but as technology improves we are able to increasingly utilize what used to be considered spent fuel, and all of the radioactive waste produced from all of the nuclear reactors currently in use could be stored in a few large buildings. Nuclear Power Plant

Burning coal or oil produces greenhouse gases, which contributes to global warming. As an increasing number of people become aware of the problems associated with global warming, a clean, non-polluting source of energy becomes a logical alternative.

Second, it’s plentiful. Rocks containing uranium are found on many places on earth, and because great quantities of uranium are not required to fuel a nuclear reactor, it is estimated that we have enough uranium on earth to last for at least the next few hundred years. In fact, Bernard Cohen of Stanford University has calculated that nuclear energy could last on this planet for billions of years. It is even possible to harvest uranium from seawater.

Ux U308 Price
According to Cohen, at a price of $40 per pound, uranium contributes about 0.2 cents per kwh to the cost of electricity (electricity retails between 5 cents and 10 cents per kwh in the U.S.), which means that even at a cost of a few hundred dollars per pound, the cost of uranium is a small component of the cost of producing electricity.  

(As you can see from the chart on the right, courtesy of of uxc.com and updated weekly, the price of uranium is considerably more than $40 per pound).

Finally, there are large concentrations of uranium in places like Canada and Australia, two very friendly countries. (The United States has not been at war with Canada since about 1813). Reliance on oil means America is tempted to fight foreign wars, like in Iraq. There is no such problem with nuclear energy. In fact, switching to nuclear energy is a matter of national security, so that we are no longer dependant on foreign powers.

The conclusion is simple. The world has no choice but to begin the shift to nuclear energy, and that means that uranium mining companies will be great investments for years to come.

While uranium is plentiful, it takes many years to bring new mines into production, so it is likely that the demand/supply imbalance will not end until approximately 2015 when new mines are in full production. As the chart above shows, we continue to experience a significant supply/demand imbalance, so it is expected that the price of uranium will continue to increase.

According to the U.S. government, nuclear power accounts for about 20 percent of the total electricity generated in the United States, so if we eventually move to a majority of the world’s energy being generated by uranium, there is lots of upside as our uranium usage increases.

A word of caution

On a macro level, uranium mining companies will be a great investments for many years. However, the energy market is a very volatile market. Step consolidations occurred in 2006 and 2007 in uranium stocks, so even though these consolidations proved to be temporary setbacks, the fact remains that this is not a market for the faint of heart. If you want stability, don’t invest in uranium mining companies.

In addition, every exploration company does not become profitable, so when investing in junior uranium companies it is essential that risk be minimized by investing in a basket of stocks, such as those recommended here on buy-high-sell-higher.com and discussed on the buy-high-sell-higher.com FORUM.

 

External Resources

(Don’t take my word for it; do your own research).