Uranium Technical Investment Report

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By Joshua Enomoto, Founder of ContangoDown.com and FutureMoneyTrends.com contributor

Energy Solutions for a Global Economy

Love it or hate it, uranium is here to stay with us for the long run.

Why? One simple word: demand!

Because of the insatiable thirst for energy that would only grow as societies become more advanced, China, Russia, India, South Korea, and the United States have implemented grand scale plans to build more nuclear power plants. Even Japan, while understandably reeling from the Fukushima disaster, will be forced into going nuclear. Currently, no other terrestrial resource provides the power and compactness of nuclear energy and this bodes well for future investment growth.

PRECIOUS METAL

In all fairness, uranium should be considered the “fifth” precious metal: it’s infinitely more useful than gold, it’s in a potentially explosive bull market like silver, and it is far more difficult to mine than either platinum or palladium.

CAUTION! Unconventional investment strategies ahead!

Uranium.

We know that it powers our cities, provides jobs for our workers, and that somewhere in the fictional town of Springfield lies perhaps the most famous nuclear power plant of them all. Yet uranium as an investment? To many, it sounds obscure, perhaps even dangerous. For all the positives that uranium provides within the energy sector, there are many negatives: fallouts, meltdowns, half-life, Fukushima, Chernobyl. Some of the fears are very much real, and some are perceived or exaggerated.

Regardless of personal perspective, the one point of agreement within the uranium discourse is its controversial nature. Like gun control, the debate over nuclear energy can quickly become heated, leading to dichotomous factions in a never-ending battle. Still, another point comes to mind that, despite the wrangling that has occurred in this industry in recent times, is irrefutable: Uranium is here to stay!

From a pure economic standpoint, no other terrestrial resource provides the power and compactness of uranium. This is the main reason why nations both endowed with plentiful resources and those that lack continue to acquire uranium in heavy amounts. Yes, there are other energy alternatives, but many sacrifice either cost or space, and nothing comes close to the nuclear returns of the kilowatt to dollar ratio.

Not many people understand or appreciate that uranium is currently in a supply-deficit and that this condition will only get worse. Uranium is often times more difficult to mine than other metals and demand is increasing annually.

Globally, we are in a severe recession and debt-laden countries will look for the cheapest energy solution. Therefore, uranium and nuclear power will be at the forefront of economic discourse.

Digging for Yellowcake: A Cautionary Tale

Urainum in its natural form is safe to the touch and can be handled without fear of growing unwated appendages.

Yet despite this seemingly innocuous behavior, the actual process of mining uranium is anything but.

The element is often found in areas that are geologically frageil, which poses significant risks for companies attempting to extract it.

Risk is, of course, synonymous with the mining industry as a whole, but uranium stands out even amongst this dangerous sector.

Consider the Cigar Lake incident of 206, where flooding due to geological instability shut down production of a mine that is believed to hold the world’s largest deposit of undeveloped commercial grade uranium.

Other large-scale disruptions have occurred all over the globe, including Australia, which produces the most uranium out of all nations.

Therefore, the supply demand picture can change very rapidly!

Going Nuclear:

The Supply Side Dynamics of Uranium

The uncomfortable truth about uranium is its Jekyll and Hyde nature. A particular grade of uranium (U308) can easily meet the energy needs of a bustling city, yet a different composition can just as effortlessly destroy it. With a half-life of several million to a billion years, the effects of uranium’s dark side can devastate human generations for a millennia.


However, it is the productive side of uranium that is the apple of the developed nation’s eye: the power, the size, and the clean air. Even countries that are proposing a reduction in nuclear usage are running into a steep hurdle. Germany, for instance, derived roughly a quarter of their energy production from nuclear sources and their attempt at providing 35% of its nation’s power needs through less reliable solutions is deemed greatly unrealistic.

Yet nothing the uranium industry has done has completely erased the “bad boy” image of nuclear energy, whether propagated through media or pop-culture. International news in the Middle East is often centered on Iran’s nuclear program, which is purported to be for peaceful measures; however, Israel and the United States obviously take a dim view towards Iran’s claims. Last year, a controversial movie entitled “Chernobyl Dairies” was released, which was panned by many critics as being exploitative disaster porn. Regardless of one’s opinion towards these matters, uranium has a dichotomous image and it would be intellectually dishonest not to acknowledge this.

What it comes down to, though, is this: when people flip a switch, they expect…light! And governments want to provide that light at the cheapest rate possible. For the future trend minded investor, nothing could be more bullish as uranium is currently in supply deficit. According to Mark Lackey, investment strategist for Pope & Co., he forecasted a uranium spot price of $100 in 2013 based on mining disruptions (both geological and political drivers) and the fact that a US-Russia treaty involving the export of uranium from old Soviet warheads will likely cease due to current political tensions. Further, a political change of guard in Japan is pro-nuclear and will potentially invigorate a market in flux. This, on top of increasing global demand suggests that uranium has a very bright, and profitable, future!

 

The U308 Market: A Short History

During the early 1970’s, America was facing both an economic and political crisis. It was the height of the Vietnam War, with rampant civil unrest and images of dead bodies transmitted across the nation. For the everyday working American, their wallets were particularly hit hard: the U.S. had hit peak oil and fuel costs were surging. The need for alternative energy solutions became rapidly apparent.
Tepid and often times incompetent government actions led to lower standards of living and higher costs. This was reflected most notably by rising gold prices. Once fixed at $35, gold immediately broke $50, then $100, then $200…by the late 1970’s, gold would be challenging $400 and beyond, a truly astounding number!
Meanwhile, the other yellow metal that went by the strange name of U308 was enjoying a bull run of its own: uranium’s spot price went from $7 a pound in 1972 to just over $40 by 1979, a 470% profit.
However, movies like “China Syndrome” and incidents such as Three Mile Island quickly turned public sentiment sour and thus ended one of the most unheralded bull markets in modern investment history.

U308 Yellowcake: The Politics of the Uranium Industry

The uncomfortable truth about uranium is its Jekyll and Hyde nature. A particular grade of uranium (U308) can easily meet the energy needs of a bustling city, yet a different composition can just as effortlessly destroy it. With a half-life of several million to a billion years, the effects of uranium’s dark side can devastate human generations for a millennia.


However, it is the productive side of uranium that is the apple of the developed nation’s eye: the power, the size, and the clean air. Even countries that are proposing a reduction in nuclear usage are running into a steep hurdle. Germany, for instance, derived roughly a quarter of their energy production from nuclear sources and their attempt at providing 35% of its nation’s power needs through less reliable solutions is deemed greatly unrealistic.

Yet nothing the uranium industry has done has completely erased the “bad boy” image of nuclear energy, whether propagated through media or pop-culture. International news in the Middle East is often centered on Iran’s nuclear program, which is purported to be for peaceful measures; however, Israel and the United States obviously take a dim view towards Iran’s claims. Last year, a controversial movie entitled “Chernobyl Dairies” was released, which was panned by many critics as being exploitative disaster porn. Regardless of one’s opinion towards these matters, uranium has a dichotomous image and it would be intellectually dishonest not to acknowledge this.

What it comes down to, though, is this: when people flip a switch, they expect…light! And governments want to provide that light at the cheapest rate possible. For the future trend minded investor, nothing could be more bullish as uranium is currently in supply deficit. According to Mark Lackey, investment strategist for Pope & Co., he forecasted a uranium spot price of $100 in 2013 based on mining disruptions (both geological and political drivers) and the fact that a US-Russia treaty involving the export of uranium from old Soviet warheads will likely cease due to current political tensions. Further, a political change of guard in Japan is pro-nuclear and will potentially invigorate a market in flux. This, on top of increasing global demand suggests that uranium has a very bright, and profitable, future!

 

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