Uranium Miners Have a 'Glowing' Future

03/15/2013 7:45 am EST

Focus: COMMODITIES

Jeb Handwerger

Editor, GoldStockTrades.com

Nuclear power generation is once again on the rise, and uranium miners are poised to benefit, writes Jeb Handwerger of GoldStockTrades.com.

The uranium miners have been basing since Fukushima, shaking out the weak retail investors.

However, this undervalued sector may be poised for a major rebound in 2013, as I expect an increase of institutional interest, as well as merger and acquisition activity. Already, the two-year downtrend in uranium prices is being broken to the upside, after bouncing off three-year lows.

I highlighted the CB&I (CBI) deal with Shaw (SHAW), the Chinese-Cameco (CCJ) connection, the Russians and Uranium One (SXRZF), and the coming acquisition of junior explorers in the Athabasca Basin. Witness the acquisition of Fission Energy (FSSIF), which borders the famous Hathor Deposit, which was taken over by Rio Tinto (RIO) in 2011.

The sentiment has changed, and is turning positive. This sector is extremely active with investment interest and confirms my belief that the death of nuclear that was called by so many analysts over the past two years was premature.

Large companies such as Cameco, BHP (BHP), and Rio Tinto are delaying large capital expansions and may be looking for undervalued juniors in mining-friendly jurisdictions with easier capital requirements.

The general equity markets are hitting new highs while uranium is well below its pre-credit crisis highs of over $125 a pound. The supply-demand imbalance is already present, and investors are looking to capitalize on the upcoming expiration of the Russian HEU agreement in 2013. (For 20 years, an estimated 24 million pounds of uranium were supplied to utilities from Russian warheads. These secondary supplies will now need to be made up by increased uranium mining.)

Cameco expects the demand for uranium to increase nearly one-third over the next decade. While the rest of the resource sector is weak, the increased M&A in uranium, most notably by Uranium One-ARMZ and Fission, may be signaling that the big money feels we are near the bottom.

While precious metals explorers are seeing tight markets, investors are financing uranium exploration companies. Most notably, a tiny stock in the Athabasca Basin partnered with Fission. Alpha Minerals (ESOFD) had encouraging drill results and soared sevenfold.

There are not many high-quality producers that are publicly traded after the Uranium One takeout other than Cameco and Paladin (PALAF). Look for producers in the United States who are fully-permitted. US utilities need a major increase of uranium mining to power its 104 reactors, or else the lights could go out.

Recently, the Japanese people have elected a pro-nuclear government, and German utilities are suing the government in opposition to rising electricity costs and air pollution. I would not be surprised to see the German people make a similar move as the Japanese, to swing the other way and turn pro-nuclear to fight rising costs and increased air pollution.

The so-called green energy initiative to move away from nuclear has cost Germany dearly, not only financially but environmentally. Carbon dioxide emissions increased in 2012 as a result of closing eight nuclear reactors following Fukushima. Germany was on track before Fukushima to reduce noxious emissions to a record low.

Industrialized societies increasingly need a form of base-load electricity. How soon we forget the greatest power outage in history in India just several months ago, which affected 670 million people as the grid collapsed.

These power failures are still occurring all over the world. Consumption is increasing exponentially and will need additional uranium supplies from new low-cost mines.

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