Uranium: Power Plays
02/06/2004 12:00 am EST
"Personally, we dislike nuclear energy," says Jim Dines, editor of The Dines Letter. "Unfortunately, the world is going nuclear in a big way, whether we like it or not. Global usage is running at a severe deficit as compared with production." Here's how to invest in this trend.
"At the end of 2002, there were 441 nuclear reactors in operation worldwide, with another 34 under construction. Uranium inventories are low, and a long period of low prices means that exploration and development has left pipelines parse. And nuclear utilities have no substitute for uranium, so if they don't have any, the lights go out. Period. Meanwhile, the looming shortage of natural gas and its high cost is making nuclear very competitive.
"We first recommended Cameco (CCJ Toronto) last June, after which it rose 83%. Cameco controls the world's largest high-grade reserves. It is America's only uranium producer (Wyoming and Nebraska), with mines in Canada and a test mine in Kazakhstan. Our second uranium play has been Denison Energy (CA:DEN Toronto). It will recapitalize into three separate companies, and the one that interests us will be Denison Energy. These are not near-term trades for us. We intend to hold them both for sometime, until higher earnings shine through.
"Technically, the charts suggest that uranium is in a major bull market. Uranium bullion itself is in a near-vertical rise, and it's beginning to be reflected in uranium shares. If we are right abut uranium prices, then Cameco and Denison will see steadily higher earnings in coming years. We favor this group for serious investment purposes, especially since nobody else seems to have discovered this bull market. We believe that all portfolios should maintain a position in preparation for 'the coming uranium buying panic' - ignoring consolidations and corrections, as we have all the way up within this major uptrend."