It’s been four years of hell for uranium companies …
It started in early 2011 … when a massive tsunami hit the eastern coast of Japan. The county’s Fukushima nuclear plant on that coastline was significantly damaged.
The plant released substantial amounts of radioactive material. Upward of 300,000 people had to be evacuated from the area. And the leak could not be contained for several years.
After the disaster, some of the largest uranium-producing countries began to abandon their nuclear initiatives.
In short, demand for uranium came to a grinding halt.
This caused a massive 60% crash in uranium prices — and ultimately a crash in uranium stocks.
But it appears the bottom in uranium prices is finally here … and I see several catalysts that will result in much stronger demand and higher prices.
Investors buying into the right uranium stocks could easily see triple-digit returns from these super-depressed levels.
That’s because, shortly after the Fukushima nuclear disaster, a fundamental change took place in the uranium market.
Here’s what happened …
Some of the biggest uranium consumers in the world began to abandon their nuclear initiatives.
For example, France (the second-largest consumer of nuclear energy) said it would cut its share of nuclear power for electricity generation by 33%.
Germany (the fifth-largest consumer) said it would completely phase out nuclear energy within 10 years.
Belgium, Italy and Switzerland also shelved projects to build out nuclear power stations.
But the big news came out of Japan.
Japan’s Nuclear Energy Reactions
The third-largest nuclear-energy consumer operated more than 50 nuclear reactors. These reactors powered roughly 30% of Japan’s electricity.
Prior to the Fukushima disaster, Japan had plans to increase this percentage to 40% by 2017 — and to more than 50% by 2030.
After Fukushima, however, Japan announced it would abandon nuclear energy altogether.
Huge demand was about to come off the market. And some of the biggest uranium producers were still increasing supply.
Plus, Japan sold its stockpiled uranium into the market.
Based on these simple facts, uranium prices had no place to go but sharply lower.
Today, nuclear prices are trading near $37 a pound. To put that in perspective, uranium prices traded over $130 a pound in 2007 — and around $65 a pound in early 2011 — just before the Fukushima disaster.
At $37 a pound, uranium is selling well below the production cost of many miners. That means most uranium producers are no longer making money.
This is what I like call a “disconnect” in the marketplace.
It’s almost like what we are seeing in the oil markets right now.
After the recent crash in prices, most oil companies can no longer make money producing crude in shale areas.
That means supply must come off the market.
Producers must also find a way to lower the cost of production in order to make money.
We are in the very early stages of this disconnect in the oil markets. And it will take a long time to get our massive supply of oil off the market.
However, uranium prices have been depressed for nearly 4 years!
Uranium producers have found ways to cut costs during this dramatic downturn. And they had no choice but to reduce supply during this ugly downturn.
These are positive steps that are stabilizing uranium prices.
More important, some countries that chose to abandon their nuclear programs a few years ago are now reconsidering their decision.
Starting with Japan…
After shutting down its nuclear program, Japan said its utility companies are losing $30 billion each year.
That’s because other alternatives like natural gas are much more expensive.
And these losses are accelerating in the face of 50% rate hikes for some consumers.
That’s a lot of cash for a country that’s struggling for growth.
That’s why Japan’s government announced it would restart dozens of nuclear reactors — starting with nine in 2015 and another 10 in 2016.
Then there’s China …
China currently has 22 nuclear plants in operation. However, its government has an initiative in place to build six to eight nuclear reactors each year from 2016 to 2020.
China plans to build at least 10 nuclear reactors each year after 2020.
That’s just for starters …
According to investment firm Credit Suisse, hundreds of new nuclear reactors are either under construction or being planned in countries like Russia, South Korea, Taiwan, India and the United States.
These nuclear plants will fuel demand for uranium. And over the past few months, we’ve finally seen uranium prices bounce off their low of about $30 a pound.
If uranium prices continue to move higher — which I expect — uranium stocks will also move higher. Some of my favorite names include Cameco (CCJ) and Denison Mines (DNN). These stocks are trading near five-year lows today.
Any positive news could easily push these names up 30%-plus in the shorter term. Longer term, once these new and idle nuclear plants come online, these stocks could easily double from current levels.
The time has finally come to consider adding a few uranium stocks to your portfolio. These names are not just dirt-cheap … but there are positive catalysts on the horizon that will result in much stronger demand — and, ultimately, much-higher uranium prices.
Good Investing,
Frank Curzio
