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Published: July 12, 2010
In a bid to cut its dependence on coal,
China has thrown its weight behind the nuclear option -- in a
really big way. And China's not alone. In my
recent look at nuclear power's renaissance, the United
States, India, and many other countries are ramping up their
nuclear output.
Throughout China, more than two dozen nuclear plants are being
built at a furious pace. To help fuel all those plants, China
recently signed a new contract with U.S.-based Cameco (NYSE:
CCJ), the world's largest publicly-traded producer of
uranium. The contract, like everything in China, is on a grand
scale.
China anticipates buying 5,000 tons of uranium this year. That's
twice as much as it consumes annually. Yet looked at another
way, it's the amount that China will eventually consume every
year once these plants come on line. So this is no one-time
deal. China's state-owned China National Nuclear Corporation (CNNC)
signed a deal with Cameco in late June to buy 23 million pounds
of uranium by 2020.
And all that buying should start to have an
impact on uranium prices. The radioactive material sold for
roughly $55 a year ago, but has recently slumped to $41,
according to UX Consulting. But analysts at RBC Capital markets
think we're heading back to those 2009 prices. And down the
road, uranium may fetch more than $100 a pound, as it did in
2007.
And investors are finally starting to re-focus on this
commodity: shares of Cameco, which bottomed out on July 2, have
since been slowly rising and were up +4.4% today at $23.85 per
share.
Yet shares remain more than -60% below 2007 levels. What would
it take to get the stock back up toward those past highs? An
increasing perception that demand for uranium will eventually
overtake supply. Back in 2007, in the face of rising demand, too
many new mines were opened, creating a glut. It will take a year
or two to eliminate that glut, but it appears the necessary
supply and demand trends have finally started to move in that
direction.
Action to Take --> Shares of
Cameco appear to have +20% to +30% upside if uranium prices move
back into the $50s. Shares could double if uranium prices start
to cross the $100 threshold. (Prices briefly touched $136 in
2007). Investors may also want to check out smaller producers
such as Uranium Energy Corp. (AMEX: UEC), which owns
several mines in the Western United States.
-- David Sterman
Staff Writer
StreetAuthority |
