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Its been almost a year since the Fukushima power plant incident that sent the uranium markets into a a steep decline over the span of 2011. Before Fukushima ever happened, I had been converted from seeing nuclear power as dangerous towards the real alternative for energy for the future. What researchers are hoping for is the creation of a Fusion reactor that would theoretically harness energy to such a degree that the current nuclear option would seem to become obsolete. Despite this hope of tapping an unlimited power source, that dream is still 50 years away.
The argument for alternative energy (ie. wind, solar, geothermal etc. etc.) is that these sources are often brought with limits of their own (wind depends on a constant wind source, solar depends on the area, geothermal, not enough for our energy needs). Besides this they do not provide a stable energy source needed for the vast energy networks. While they do add a reasonable percentage to the base network, the fact remains is that it will not be enough.

Coal and natural gas are other alternatives, but are again either not clean, or dependent on supply. One of the benefits of natural gas is the current supply on the markets and the price and swiftness with which new plants can be built. Therefor the main alternative is to go nuclear.

Countries such as China and India are on the rise and are choosing to provide the base of their energy networks to be nuclear. In fact, there are 64 nuclear power plants around the world that are under construction providing an increase 15% from the current 430 active reactors. However the major problem that is looming around the corner for the nuclear market is that there is not enough uranium (Ux U308) to go around, nor is there enough growth in uranium mining production that will be able to meet this demand. In fact countries are already digging into their reserves that shortages will become a reality.

 

The source of uranium comes from two alternatives, production and the reprocessing of nuclear materials from dismantled nuclear bombs. In 2011, mining production accounted for an estimated to be 150M lbs of the 195M lbs needed by the reactors. The shortfalls in the production side includethe materials provided by the nuclear disarmament treaty that is set to expire in 2013. In light of this a shortage is around the corner.

 

http://www.uxc.com/review/uxc_graph_u3o8.png 

 

Looking back over the past 10 years one can see that there was a spike in uranium back in 2007.

Also a  second upward trend was underway in 2010-2011 until the Fukushima disaster occurred.  In the short term the Japan disaster has played on peoples minds. However over the last month investors are returning to the nuclear market after seeing that the uranium price has hit resistance at around the $50 level. Today the uranium price is at a rate of around $52/ lb.

In January, investors have returned to the markets looking to ride the next trend, aside from gold and silver. Cameco Corporation (CCJ) is the markets largest big-cap uranium play. With its geographical location in the Athabasca basin in Canada it is located in a politically stable region that is welcome to mining. Besides this, Cameco has set itself a target of doubling its production to 40M lbs in 2018. This would still mean that there would be a shortfall in the uranium supply assuming the reactors in production are still in production and the thirst for energy does not grow. All in all, Cameco has a lot going for it.

Valuations on CCJ show that it offers a ROE on a 5 year average of 16%, Debt/ Equity of 0.2, P/E 23.9, Forward P/E 18, P/B 2, PEG 0.7, and a dividend yield of 1.7%. With regards to dividend, it is nice to see that it has had a yearly increase of its dividends. Another factor that is helpful to keep in mind is the fact that Uranium contracts are long term based. But it still should not dispute the leverage that this company has with the Uranium price.

Another factor to keep in mind with regards to the future of the uranium price is Camecos attempt to a hostile takeover of neighboring Hathor Explorations (HAT). This started a bidding war with Rio Tinto (RIO) which Rio eventually won. Despite this loss it did give an indication to the markets that the big boys were buying.

Another neighbor to Cameco and Rio Tinto is Fission Energy Corp (FIS –TSX/VEN). Fission is also an exploration company like Hathor with claims near the Hathor Roughrider deposit. Since the bidding process started for Hathor, Fission Energy Corp shot up last November from $0.47 /share to $0.95/ share. While the price has returned to $0.76/ share, it remains to be seen as a matter of time till a bid is made on their uranium rich properties. The company estimates that they are roughly 24 months behind Hathor when the acquisition was made by Rio Tinto.

All in all uranium and uranium miners have a lot going for them in the coming years. Supply shortfalls can only last for so long. While Germany plans to abandon its nuclear plants, it still accounts for only 5% of current world demand, the only thing that can hurt the uranium prices are further disarmament treaties or another nuclear disaster that harms the image of nuclear power.  In the long term I see both companies having much potential and will certainly benefit from the uranium boom that is sure to come. 

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