The Trade Idea: After last week’s development in OIL’s Quantitative Gravity, I would avo...
The Uranium Sector Is Heating Up
01/23/2013 6:00 am EST
One of the sleepiest sectors in energy has been uranium, which is the power behind nuclear energy, but that has already started to change, says Jeb Handwerger of GoldStockTrades.com.
At the end of 2012, I was interviewed on uranium and indicated to investors to accumulate as the uranium miners and the uranium price hit three-year lows.
The pullback in uranium miners and price coming into year-end was a potential buying opportunity, as they reached important support levels historically indicative of a bullish reversal. I also warned of an increase in merger and acquisition activity in the undervalued uranium sector, as there are many discount opportunities trading at ridiculously low levels.
This was at a time of great pessimism. Despite being ridiculed by the popular media, our readers were bullish and in fact they believed that may have been the "Post-Fukushima" bottom. We are witnessing a powerful rebound in the uranium price and the uranium miners as measured by Global X Uranium (URA).
Last week we heard that Uranium One (SXRZF) will be bought by ARMZ, its controlling shareholder, for $1.3 billion in a friendly deal. This means the Russians will have an increasing presence in the Powder River Basin.
Putin is pushing nuclear power not only for Russia, but to export technologies to emerging atomic nations. A few months ago, we predicted a growing Chinese and Russian role in developing domestic US assets. In September, I wrote: "Cameco (CCJ) has announced that they will be actively searching for North American companies on the cusp of production. Do not forget the Russians and Asians are donning cowboy hats in Wyoming looking for their next target."
This may be just the beginning of an increase in mergers and acquisitions in the undervalued uranium space, as measured by Market Vectors Nuclear Energy (NLR). This announcement takes a major uranium equity out of the public market. The next major player who is a producer is Paladin (PALAF). They have two operating mines in Africa.
This acquisition may be a way that Russia can tighten its control on the potential uranium supply, as the Russian HEU agreement ends later this year, and only sell the uranium on the condition of using their nuclear services. This will squeeze other nations to search for available supplies which are few and far between. The coming price spike may occur even as early as 2013.
Although we did see Germany temporarily back away from nuclear following Fukushima, we are seeing a continuation of the trend toward nuclear power globally. Japan has a pro-nuclear government turning back on the reactors, and China is constructing new reactors.
Europe has 160 nuclear reactors and is the largest per-capita user of nuclear, and only has one operating mine in the Czech Republic despite being the largest per capita consumer of uranium. This means they have very little domestic supply on the continent.
Keep a close eye on multi-commodity assets that have a diversified supply of not only uranium but the critical rare earths, as measured by Market Vectors Rare Earth Strategic Metals (REMX). Some of these deposits have great leverage to rising uranium and rare earth prices.
Watch the Athabasca Basin. Most notably, Denison's (DNN) acquisition for Fission Energy (FSSIF) for approximately $70 million. Fission was the most likely candidate for acquisition after Rio Tinto (RIO) bought their next-door neighbor Hathor for the Roughrider Deposit.
Keep a close eye on UEX (UEXCF) as the next potential target. Do not be surprised if Denison is gobbled up as well.
I like exploration companies with seismic experts who have helped discover the major Athabasca Deposits such as McArthur River, Shea Creek, Key and Moore Lakes, and Hathor's Roughrider Deposit. Seismic is critical for discoveries in the Athabasca Basin, which may be the 21st century Saudi Arabia.
2013 may turn out to be a great year in the undervalued uranium miners and to the patient uranium investors who followed our lead and believed in the long-term viability of this sector.
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