Uranium : Buy Now

The uranium market is tightening. Now is a great time to buy.

It’s a simple case of supply and demand. The supply of uranium has been falling at a time when demand is rising. That can only mean one thing for the uranium price... it’s going to rise again.

Let’s have a look at what’s going on at the world’s largest uranium producers.

Cameco: On 14 August the group cut its 2008 production forecast. It now expects to produce 19.6 million pounds of uranium, down from 20.6 million pounds. Its future production is also in danger. Water has started leaking into its key Cigar Lake project - again. Cigar Lake is believed to be the biggest undeveloped high-grade uranium deposit in the world. It has proven and probable reserves of 232 million pounds. The company first reported flooding at Cigar Lake in October 2006. It has been working on pumping the water out of the mine since then. However, three weeks ago there was another disaster. The volume of water flowing into the mine jumped from a steady 25 to 30 cubic metres per hour to as much as 600 cubic metres per hour from the waterlogged sandstone that surrounds the mine. The mine is flooded again. When this vital resource will be tapped is now anyone’s guess. I am not holding my breath.

Uranium One: Its Dominion Mine in South Africa is also having severe problems. This flagship project is turning into a liability. Uranium One’s initial forecast for Dominion’s production was 2 million pounds. This was cut to 590,000 pounds in March. On 13 August, this forecast was cut to 320,000 pounds. This means total production for the company is now expected to be flat in 2008 at 3.1 million pounds.

Paladin Resources: You guessed it. Another production cut was recently announced. It now expects 2008 production to be as low as 2.45 million pounds. Its previous forecast was 2.6 million pounds. Things are brighter for Paladin, however. It has new sources coming on stream next year. The expansion of its mine in Namibia should be complete by December, with a project in Malawi coming on stream in January.

ERA: the Australian uranium producer expects flat production. After a slump in the first half caused by mine flooding, it expects to ramp up production in the second half of the year to a "normal" level.

Denison Mines: The Canadian producer cut its 2008 production forecast on 13 August. It now expects to produce 1.7-1.9 million pounds this year, compared with its previous forecast of 2.1-2.4 million pounds.

The World Nuclear Association had expected uranium production of 124.8 million pounds this year. This would be a 16.5% increase on 2007 production. However, with major producers slashing production expectations, this simply is not going to happen. We will be lucky if supply is flat.

Now let’s look at demand.

World uranium output has never been enough to meet demand. Some figures say 60%, some say 80%. The rest is made up from government stockpiles.

There are still large military stockpiles that are gradually being released to the market. This follows an agreement between the Americans and the Russians in the 1990s.

They agreed to release 150,000 tonnes of uranium between 1995 and 2013. This is equivalent to 8,000 tonnes per year. There is also a further 1,000 tonnes or so of secondary supply each year from other ex-military sources.

The use of secondary uranium supplies is unsustainable. This is particularly true at a time when nuclear energy capacity is on the rise.

The main use of uranium is in power generation. So, we need to look at new reactor construction to get an idea of how much demand is going to rise.

There are 439 nuclear reactors currently operating in 30 countries. In 2007 nuclear power generated 16% of the world’s electricity.

There are 35 power reactors under construction in 11 countries, notably China, South Korea, Japan and Russia. This rate of construction is going to rise.

The International Atomic Energy Agency now expects at least 60 new plants will be built in the next 15 years.

But this is just is not the whole story. There’s capacity increase and the extension of nuclear plant life to consider.

Many power reactors are having their generating capacity increased.

In Switzerland, the capacity of its five reactors has been increased by 12.3%. Spain has a program to add 11% to its current nuclear capacity by upgrading its nine reactors. Finland has boosted the capacity of its Olkiluoto plant by 29%. There are more examples I could cite.

Then there is life extension.

Nuclear power plants are expected to have a lifetime of 40 years. However, advances in engineering have made reactor lifetime increases possible. In the US nearly 50 reactors have been granted licence renewals which extend their operating lives to 60 years. In Japan, plant lifetimes up to 70 years are expected.

The uranium spot price is currently sitting at $64.50 after hitting a peak of $137 last year. I expect the uranium price will start to rise again in this year and next, supported by these tight market fundamentals.

I also believe a lot of investors will burn their fingers trying to play this trend. You see, one of the most obvious ways to play uranium is to buy a uranium miner. But as we’ve seen, mining companies can be beset by all sorts of problems. And these problems can affect their share prices.

I’ve already revealed to readers of my Smart Commodities service an entirely different way to invest in this opportunity. Not only that, but I’m also looking at a uranium enrichment firm which I expect to recommend very soon.

Become a member Smart Commodities and you too could benefit from these recommendations.

Find out more here

Regards,

Garry White
Editor
Smart Commodities UK

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Uranium : Buy Now

Buy Uranium Now