AnalysisUranium is good investment

Looking for investment opportunities in these tough economic times? How about uranium mining and processing companies? Nicholas Jones of Oxbury Research highlights the reasons for his bullish attitude toward uranium, and his criticism of analysts who miss the point.

Some background (about uranium, and about financial analysis). There was a time not too long ago that uranium went from a single digit price to over $130 a pound in one of the greatest commodity bull markets in our history. The metal fell from those dizzying heights all the way to $45 a pound. “Since then, uranium has been forming a consolidated base that it could, and probably will rally off of,” Jones writes. His important insight here: “the fundamentals of the uranium market haven’t changed.”

Jones’s analysis of the potential of uranium allows him to make a broader point: during periods of economic decline, the demand for financial knowledge in order to navigate the volatile rapids increases dramatically. Trouble is, “Your standard analyst just isn’t contrarian. He follows the crowd. The problem is that contrarian play is the only way to make the big plays that can make a difference in your financial circumstances.”

Which brings us back to uranium and its potential — potential that exists because the fundamentals of the uranium market haven’t changed:

• There are currently 439 reactors in operations in 30 different countries. The reactors consume 167 million pounds of uranium annually. Note this: The problem is that current mine production is only 108 million pounds per year.
• In addition, there are 36 reactors currently being built, with China, India, and Russia leading the way. There are 99 reactors in the “planned” stage and 232 reactors in the “proposed” stage. The majority of these planned and proposed reactors are in BRIC countries (Brazil, Russia, India, China). Jones notes that this makes sense given that the BRIC countries need to grow their electrical infrastructure in order to fuel the growth.
• At $54 a pound, uranium is very economical to mine. “At this point of the commodity supercycle, we would expect some new mine supply to be coming on board,’ Jones writes — but, unfortunately, this is not the case, owing mainly to several mine disruptions. Examples: Cameco (CCJ) has had many problems with its super mine at Cigar Lake. It has had costly setbacks for the past couple of years due mainly to mine flooding. Cigar Lake was expected to bring on board 17 million pounds of annual supply. Uranium One (SXRZF.PK) was forced to shut down its Dominion operations in South Africa, and Denison (DNN) just shut down its recently opened U.S. mine.
• The discrepancy between mine supply and reactor demand has been so far fulfilled by blending down materials from dismantled nuclear weapons and old stock piles, but as Jones notes, these supplies are finite.

Now we come to Jones’s critique. “The uranium market is a perfect example of the financial analysts’ incompetency,” he writes. Those who listened to their advisers who joined the band wagon when uranium reached $100+ a pound lost their clients a lot of money. Now opportunity is presenting itself again. Many of those analysts who once covered these markets have moved on and are not even aware of the recent price turnaround.

Jones said that it is the continuing attention to uranium that separates Oxbury Research from the rest. He says he will be sharing some of the particular investments in the uranium sector that he expects to outperform. We will bring you his insights.