By Nick Hodge
This article was supposed to be about gold.
There are plenty of people talking about gold at this point. Its rise after a protracted bear market was inevitable, and over a third of the world's debt moving into negative yield territory drove enough capital into the yellow metal to turn the market around. We know it's going higher.
So let's talk about uranium. That other metal that's supposed to be in a bull market by now.
It's had all the classic markings of a coming bull market for several years now. Fear subsiding after Fukushima. Japanese restarts. Rapid nuclear growth in China, Russia, and India. Sustained low prices that took enough supply offline to correct the balance.
Indeed, the price of uranium has been below $50 per pound for nearly four years now, and is below $30 now. At current prices, more than half of primary supply is underwater.
These low prices are at a time when the outlook for nuclear energy – and therefore uranium demand – remain robust. The U.S. has nearly 100 operable reactors. China could have that in a decade. There are more than 200 reactors being built, licensed to be built, or in advanced planning worldwide.
The International Energy Agency (IEA) has said the world needs to double its current installed nuclear capacity to 930 gigawatts by 2050 to meet the international goal of limiting the global temperature rise to two degrees Celsius by the end of the century.
As the world continues to build out its nuclear fleet, a uranium shortfall scenario could emerge fairly quickly, which is why many banks and analyst are calling for much higher uranium prices in the longer term.
Prices right now aren't high enough to spur new production. But over the next decade that will have to change as the world needs to bring 80 million pounds of new uranium supply online annually.
New uranium supply isn't that easy to come by, so the few publicly-traded producers out there will yield good returns as this scenario plays out over the next few years. The $4 billion Cameco comes to mind.
But believe it or not, there is plenty of microcap action in the uranium space as well. In fact, of the four companies currently producing uranium in the U.S., three of them have market capitalizations below $100 million. The fourth is Cameco.
And when it comes to exploration, it's nearly entirely a small and microcap game. Nine out of ten of the world's best undeveloped uranium assets as ranked this year by the prestigious Mining Journal have market caps below $300 million. Seven of them are below $100 million.
These tiny uranium companies can increase by many multiples once the sector gains more wide stream favor. We saw it in 2006 and 2007 after the flooding of the Cigar Lake mine, when microcap uranium explorers ran thousands of percent in months.
I believe we are staring directly at another uranium bull market – this one driven by demand.
About Nick Hodge
Known for a “call it like you see it” approach to money and policy, his insights have led to numerous appearances on television and in various outlets on the Web, including the Business News Network and Yahoo!'s Daily Ticker.
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