I Have Never Seen Any Market Like This One
James Dines, The Original Uranium Bug
J Taylorís Gold & Technology Stocks
December 26th, 2006
Your editor has been walking this earth perhaps a decade or more less than James Dines, but I have been around as an adult watching markets since the late 1960s and I would have to agree with James Dines that there has never been a market like the current uranium market. What is most remarkable is that even when oil and gas markets have run through considerable corrections, uranium prices have just kept on rising. We have spelled out the fundamental reasons for this phenomenal bull market in uranium before, but letís quickly review the forces at work behind the rise of U3O8 (yellow cake) once more.
- Nuclear power plants must have uranium as fuel. There are no substitutes, so if they do not have
uranium, their hugely expensive plant and equipment sit idle.
- The cost of uranium relative to total operating costs, even at the current price of $72 per pound is very low. In fact, one Toronto-based analyst estimated that uranium would need to rise to $500 before it would begin to equate to the cost of fuel for natural gas driven power plants.
- Uranium production from mines is currently meeting only about 60% of annual consumption to fuel
existing 440 nuclear reactors around the world. As such, the stockpile of uranium that resulted from the disassembling of nuclear weapons by the Soviet Union is rapidly drawing down.
- There are no significant new supplies of uranium scheduled to come into production until 2010 or later, but by then there will be new nuclear power plants hungry for additional sources of uranium. Just this past week China announced that it is hiring General Electric to build four new nuclear power plants and Toshiba to build three. But there are dozens more power plants on the drawing boards in China and India and elsewhere, all of which demand more uranium.
The following picture, though out of date, says it all as far as explaining why uranium prices are exploding higher and why they are likely to continue to do so for the foreseeable future.
What you see on your left represents historical data through 2001. As you can see, total production from mines has been inadequate to meet demand since 1985. Prices continued to fall as new supplies from disassembled weapons hit the market. But now, with those stockpiles being consumed, there is an increasingly panicky atmosphere in the uranium markets. And that panic was exacerbated recently with the flood at Cigar Lake, because Cigar Lake was to have supplied the world with about 24% of its annual uranium supply. It is likely that this mine will be at least one year behind schedule if not more at the mine, as re-permitting and re-engineering will have to take place.
Higher Prices Trigger a Frantic Search for Uranium Deposits
The market forces above are not only bullish for uranium but I believe make this metal almost recession proof. Sure, if we entered Ian Gordonís Kondratieff winter deep freeze, demand for energy would decline and oil and gas prices would fall, perhaps dramatically. However, with a major portion of the worldís electricity being supplied by nuclear power plants, and with those plants needing to keep supplying electricity even in a major economic decline, and with supplies of uranium dwindling, it is hard to see how uranium prices would fall, even though the cost of mining uranium may decline in a deflationary environment.
December 26th, 2006
This is Jay Taylor speaking for Taylor Hard Money Advisors (ďTHMAĒ), publisher of J Taylorís Gold & Technology Stocks newsletter as of December 25, 2006. Our weekly telephone Hotline messages are normally updated every Saturday at 8:00 p.m. ET unless otherwise notified. As always, all monetary quotes mentioned in this Hotline message are in U.S. dollars unless otherwise noted. The opinions expressed in this message are those of Jay Taylor only and they do not necessarily represent the opinions of Taylor Hard Money Advisors, Inc., the publisher of J Taylorís Gold & Technology Stocks. The management of THMA may, from time to time, buy and sell shares of the companies recommended in J Taylorís Gold & Technology Stocks newsletter and in this Hotline message. No statement or expression of any opinion contained either in this Hotline or in J Taylorís Gold & Technology Stocks newsletter constitutes an offer to buy or sell the securities mentioned herein.
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