"Nuclear power is about to enter a new phase of rapid growth," says Tony Sagami. "Plain and simple, the demand for uranium is going to go through the roof."
"What's the best way to profit from this unstoppable trend?" he asks. In his Asia Stock Alert, he answers: Cameco Corp. (NYSE: CCJ). "The biggest producer of uranium in the world should be a cornerstone of your natural resource portfolio.
"According to the World Nuclear Association, there are nuclear power plants 34 under construction, 86 on order or planned, and 223 proposed. By 2013, 48 additional nuclear power plants should go into service, and over the next 10 years, an additional 100 plants will be built, with 40 of them in Asia.
"All those new nuclear power plants, of course, are going to need uranium. Next year, uranium demand is estimated to hit 83,000 tons. But according to the Uranium Information Centre, the world only produced 46,720 tons of uranium last year.
"We're talking about a huge increase in the demand for uranium and a severe production shortage. That is, of course, extremely positive news for uranium prices and uranium producers.
"One reason for the expected growth in nuclear power is that it is now safer than ever before. In addition, governments around the world are waking up to the threat of global warming. Nuclear power, which emits no greenhouse gases, is widely seen as an effective solution.
"In addition, nuclear power is the only alternative source of energy that has a real chance of greatly reducing our energy dependence.
"What's this got to do with China, which is the focus of our Asia Stock Alert newsletter? The answer is everything. China has two monumental problems staring it in the face.
"First, China desperately needs all the energy it can get it hands on to fuel is breakneck economic growth. Second, China is suffering from horrendous air pollution. The only practical solution to those two problems is nuclear energy. Lots and lots of it.
"China currently has 11 working reactors and its five-year plan calls for 14new nuclear plants to be built. On average, China is going to build two nuclear power plants a year. It won't be long until China's uranium needs will skyrocket as these new nuclear reactors come on line.
"In our view, the best way to play this trend is with Cameco, which has been called the 'Saudi Arabia' of uranium. More than any other company in the world, Cameco is the most direct beneficiary of the build-out of nuclear plants.
"With a market cap of $15 billion, that means you are buying its proven reserves at only 36 cents on the dollar. Talk about a bargain! And, the more expensive oil becomes, the more attractive and cost-effective nuclear power becomes.
"The company's Cigar Lake mine in northern Saskatchewan has been delayed by an additional year because of a flood. As a result, CCJ dropped from the $56 high in June to the low $40s today, a price that I consider to be a steal.
"At that price, Cameco is selling for only 15 times its forward earnings, which is a bargain for a company that has been able to grow its revenues and profits at an annual compounded rate of 21% and 43.4% over the past five years.
"And Cameco is just entering what I think will be the sweet spot of its profit curve as uranium prices start to rise. I want to warn you that it will be a bumpy ride. Uranium stocks can be very volatile. If you're patient, however, I have little doubt that it is at least a $100 stock by 2010."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
10-20-2007 @ 6:21PM
Kent Beuchert said...
I wouldn't get so excited about uranium stocks. While there certainly will be a much larger demand for uranium ore, it's also true that world has plenty - recent estimates are for 600 years' worth.
10-20-2007 @ 6:40PM
John Busby said...
The US-Russian Megatons agreement comes to an end in 2013, so that half of the current US reactors may lose their fuel in 5 years time. There is no project in the near future able to fill this gap. let alone the 30,000 tonnes gap looming.
10-20-2007 @ 6:56PM
John Busby said...
Half of the US nuclear generation relies on the US-Russian Megatons to Megawatts agreement in which ex-weapons highly enriched uranium is diluted with re-enriched enrichment tails and which terminates in 2013. As the Russian uranium supply is in deficit it is unlikely to be extended.
Production is declining in Canada and Australia, 15% and 20% down in 2006 over 2005, so that there will be no extra to compensate for the loss of half of the US nuclear fuel consumption, so that half of the US reactors will be closed within 5 years.
There are only two projects able to provide part of the looming deficit, Cigar Lake is delayed until 2011 and Olympic Dam in Australia, if it passes its feasibility study in 2009, will not produce until 2014 after 4 years of overburden removal.
The idea that there is 600 years of uranium when there will be a supply crisis in the next few years is a ludicrous proposition.