The Golden Glow of Yellowcake!
Over the past six months or so, investors owning uranium stocks had every reason to be happy. It almost did not matter which stock they picked, since the majority of them posted considerable gains. Lombardi Financial was also at the party. Investors subscribing to our EXPLOSIVE MINE STOCKS newsletter saw our uranium picks post triple digit returns for the month of March.
Looking ahead, the future is even brighter, and we are not alone in thinking that. The Street also agrees that for 2006, uranium futures will average $45.00 per pound, while longer term, the price range is forecasted between $46.00 and $49.00 per pound.
For those curious as to why prices are expected to appreciate both in the near- and longer-term, the answer is very simple. The demand versus supply scales is tipping in favor of the higher demand, while the supply is expected to continue dwindling.
And here is why. Since the Cold War ended, decommissioned nuclear weapons on average supplied 45% of the world’s demand. Unfortunately, the depletion of that particular source of uranium is upon us. The supply from nuclear weapons is expected to peak this year at 17,950 tons, which represents only about one quarter of the global demand.
In addition, as far as uranium mine production is concerned, it can satisfy only about half of the global demand. Considering how much energy the world’s emerging economies need and consume on a daily basis, current supply of uranium from mining is below par.
By the same token, the world is desperately trying to keep up with the exponentially growing demand. Currently, about 40 nuclear power reactors are in the planning, while more than 60 proposals are already before the energy boards. Of course, Asian economies are the hungriest for energy, which makes the following statistics self-explanatory.
For example, South Korea has eight plants under construction. Japan is currently building three nuclear plants, while twelve are in the planning stages. In China, four plants are under construction, six are planned, while more than twenty are proposed. Finally, in India, nine nuclear plants are currently being built, while 24 have already been proposed.
I know that I’m not reinventing the wheel when I say that uranium fundamentals support its extremely bullish technical picture. Historically, whenever the scales had tipped over in favor of the demand, and to the detriment of the supply, the underlying commodity prices would have appreciated significantly and for a long period of time.
As a result, although it goes against my deeply rooted contrarian nature, I’ll have to join in the chanting with the rest of the Street: “Buy uranium stock! Uranium stocks are hot!” (I apologize for the rhyme, but when it sounds good, it sounds good!)
If you’re still not convinced, please consider this number. Last month, our uranium EXPLOSIVE MINE STOCKS posted an average return of a whopping 165.78%. Uranium picks were also ahead of the pack for the fourth consecutive month, even before our gold picks.
Our rule of thumb when identifying potentially profitable gold stocks is based more on what is buried underground and less on how many ounces of gold were produced and sold during any given quarter.
Each quarter, gold miners have to report the value of their proven, probable, and inferred mineral deposits based on the bullion’s spot prices. Since that gold is still underground, there are no extraction costs involved just yet, so the residual value is greater. And to sweeten the deal, if that company does not hedge its underground reserves against future adverse effects of fluctuating market prices, we could have ourselves a pure gold play on our hands.
In a way, Uranium Participation Corp. is also a pure play, only without having to mine a single ton of ore, or having to buy a single uranium-rich property. Instead of mining yellowcake deposits, this company simply buys and sells uranium contracts, and leaves the hassle of mining such a controversial commodity to somebody else. In my books, this small cap has a huge potential, both in the near term and long term. If nothing else, it is at least worth your consideration.