The big thing holding back the uranium miners right now isn’t concern for the long term viability of the industry – to the contrary, it is very clear to everyone that nuclear power generation is about to increase. Even concern in the US over aging reactors being taken offline is being tempered as four new state of the art models have been approved for construction.
Actually, the major impediment to higher prices is just the spot price for U3O8. The broker I follow has reported the spot price has just corrected back to new lows (based on how many virtually non-existent sales, I cannot say). URA meanwhile shows prices have corrected from the recent rally, although still off the bottom.
In that spirit, here is what I’m reading.
Uranium Participation Corp (TSX:U) is the only physically backed uranium fund. The company’s primary objective is to achieve appreciation in the value of its uranium holdings through increases in the uranium spot price. In December, Raymond James analyst David Sadowski made a case for investing in UPC, a fund managed by the management team responsible for Denison Mines (TSX:DML), explaining that the fund offers investors with “great exposure to a uranium price rebound without the typical exploration, development or mining risks associated with some of the other equities.”
After having completed a $57.6 million bought deal financing on February 6, UPC has made its first purchase of uranium in four years. The company announced on Friday that it would use a portion of bought deal financing to purchase 850,000 pounds of U3O8 at an average cost of US$34.74. UPC notes that 250,000 pounds have already been delivered, the remainder will be delivered by the end of June.
In a note to investors, David Sadowski views UPC’s latest announcement as a point in the company’s favor, supported by the overall sentiment that uranium prices are set to strengthen over the next 12 to 14 months on supply shortfalls and JApanese reactor restarts. Given these variables, and the companies current available cash, Sadowski expects to see another purchase of 800, 000 – 900,000 pounds of uranium sometime in the coming weeks.
I’m still confident we see nuclear take off this year. In the past I’ve been a little more shy about such a direct claim, arguing “sometime in the next X years,” instead. But I do believe 2014 will be the year.
I also think the volatile pricing we’re seeing is the market putting in a bottom / shaking out the weak hands as the big players start to take a more direct financial interest.
Recall from our prior discussions that the refueling needs of real reactors is almost logistics free. A nuclear reactor can run at full power for almost three years without needing a delivery of fuel from the outside, on nothing but what’s in the rods plus the typical amount of fuel in storage for a common model.
From 2011, three years is almost up. By which, I would surmise, nuclear power operations in aggregate will either begin to see electricity output decline, or else need to make a purchase.
Just my two cents on the matter.
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I own DML and of course CCO (CCJ). Had owned UPC previously (prematurely) — trading in it could get very thin, lost patience and sold it -15%. I think I can be accused of over thinking this whole space. I make a good portion of my living in Japan and I never thought they would shutdown 50 reactors for this long. Here’s hoping the 10 or so scheduled to be re-licensed, do just that. China’s “potential’ — I’ve quit updating myself on the reactor commissioning progress there.
As always, well informed and got me thinking, which is why I come here. Thanks for sharing.