Steve Todoruk: Japan Is Setting the Stage for a Uranium Rally
Investors bid up uranium stocks briefly on Tuesday, August 11, after Japan re-started a nuclear reactor.
Back in April, we saw a short-lived rally in uranium stocks. But the recent news from Japan could put uranium stock on a more durable trend higher, says Steve Todoruk of Sprott Global Resource Investments Ltd.
Uranium stocks collapsed after the Fukushima earthquake in Japan, back in 2011. Japan idled its fleet of 48 nuclear reactors.1 The price of uranium tanked from around $56 per pound to around $28 by mid-2014.2 It sits at around $35 per pound today.3
According to Steve, it may just be a matter of time before Japan brings back its nuclear power generators, which could bolster the share prices of uranium stocks.
Steve discusses the implications of this week's re-start in his note below:
Japan lacks reliable energy sources of its own and is dependent on importing fuels.
A tiny amount of uranium provides a tremendous amount of energy at an affordable cost. It was an obvious energy choice for decades.
But then came a powerful earthquake in 2011, which caused a partial meltdown at Japan’s Fukushima nuclear power plant.4
Japan responded to the disaster by shutting down all of its reactors. Many other countries followed suit, either shutting power plants down outright or slowing construction of new plants.
Fear of a nuclear disaster gripped the world. Uranium -- and uranium stocks -- became hated.
The vast majority of these companies saw their share prices crumble. The biggest and most well-known uranium mining company in the world, Cameco Corp. (CCJ.US) plummeted from $42 per share in February 2011 down to $18 by December 2011. It continued lower to below $13 by late July 2015.5
Denison Mines (DNN.US), a well-followed uranium exploration company, saw its share price fall from $4.15 down to $1.20 over the same timeframe. By last month, it had dropped to around $0.42.6
Most nuclear reactors around the world do not bear the same risks as the plant that was affected by the quake. For one, they are not built on major fault lines with active volcanism, as in Japan.
And even in Japan, there had not previously been a catastrophe of this magnitude at a nuclear plant.
Existing reactors will likely be re-enforced to avoid similar accidents in the future. And new plants can be built to avoid these risks.
Uranium: A Comeback
This first reactor re-start does not drastically increase uranium demand on its own. But it does suggest that uranium could return to favor.
The news caused a slight bump in uranium mining stocks.
As of Wednesday, August 12, Cameco is up 4% over a week ago. Uranium explorer Nex Gen Energy is up 8% and Uranium Participation, a company that stockpiles uranium reserves, is up 3% over that timeframe. Denison went up around 10% the day of the news, but then pulled back. Fission Uranium also “popped” 7.5% higher before puling back. Uranium miners Paladin Energy, Energy Fuels, and Uranium Energy have also seen their shares rise generally this month.7
It will likely take several years for Japan to re-start all of its idle nuclear plants. Each successful re-start could serve as an additional boost to uranium stocks.
If the rest of the world sees Japan go back to nuclear energy without incident, I believe that nuclear power will gradually stop being so “hated.”
Where to invest?
Cameco was a very well-performing stock during the last bull market in uranium.
As a big producer, it was a “go-to” for funds and regular investors. It rose from around $4 in early 2003 to a higher of over $56 in mid-2007.8
Another big mover was Hathor Exploration, which had co-incidentally made a brand new uranium discovery near Cameco’s mines in Canada.
Discovery plays often make the biggest moves thanks to the potential for a takeover offer.
Today, Cameco would likely still be a “go-to” stock for large funds seeking uranium exposure. It is the only large miner today to produce only uranium. By comparison, there are around 10 to 15 big gold producers to choose from.
In exploration, the most well-followed story today is likely Fission Uranium Corp., which has recently announced a merger with Denison Mines. NexGen Energy has also received attention from investors with a new discovery near Fission’s “RRR” project.
Smooth Re-Starts Could Mean Higher Uranium Prices
A second reactor is scheduled to re-start in October, according to Japanese officials. So long as these reactors come back on line without incident, I expect uranium to get a lift.
Steve Todoruk is following this trend closely and offers a complimentary review of your uranium stocks. You can contact him at 800-477-7853 or e-mail him at email@example.com.
5, 6, 7, 8, 9 Bloomberg
This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.
Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.
Friday, February 3, 2017
2017 Outlook - Sprott Asset Management USA, Inc.
Saturday, January 14, 2017
2016 in Review
Friday, December 30, 2016
Sprott Asset Management - December 2016 Strategy Report
Wednesday, December 14, 2016
Precious Metals Market Commentary
Tuesday, December 6, 2016
The Next Bull Market Move Interview - Rick Rule from London
Monday, November 28, 2016
November 2016 - Strategy Report
Wednesday, November 16, 2016
Manager Insights from the Sprott Gold Team
Monday, November 14, 2016
A Snapshot of How Trump's Election Affected Gold Commodities and Major Markets Last Week
Thursday, November 10, 2016
Post-Election Commentary from Sprott
Friday, October 28, 2016
Sprott Precious Metals Watch - October 2016
Wednesday, October 26, 2016
Corrections, Patterns, and Positioning