Investors couldn’t care less about uranium – that’s a very bullish sign

Demand for uranium will remain steady as more reactors are built

Usually when you write an article, you hope for lots of comments. Comments are a good sign. You’ve struck a nerve. People feel compelled to have their say.

Comments lead to discussion, which brings in more readers. You can say to your boss: “Look how many people are reading my article,” and ask for a pay rise.

Tweets are good too. Facebook ‘likes’, Google+ recommendations, shares – any kind of social media approbation you can think of.

So when an article gets ignored or overlooked, you skulk back to your bunker and feel rather bad about things.

Except in this instance …

Why I’m glad everyone ignored my story about uranium

Writers dream of the glory that is bestowed upon the high-profile social commentator. They want the column in the broadsheet that gets them a thousand comments for every article. They want to be invited onto the BBC to hold court about this or that issue, and for that interview to then go viral. They want to be paid fortunes for uttering their opinions.

But these great intellectuals don’t put their money where their mouth is. Yours truly, however, does.

Back in early December, I posted this article on uranium. I suggested that a ‘stealth bull market’ might be underway.

Barely a uranium company attended Mines and Money (one of the world’s biggest mining conferences) last year, for example. Investor interest was close to zero.  Hardly any mines can make money at current prices, funding has disappeared and that means there’s going to end up being a shortfall in supply. Because nobody gives a fig about uranium any more.

Do you know what? Nobody gave a fig about my article either. Nil comments. Not one. The big zero. Two likes on Facebook – one of them from me. Four tweets – one from me, one from my mum, one from MoneyWeek and one random.


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The proud, egotistical Dominic Frisby harrumphed. I should have written something about gold or house prices – or, better still, both. (I believe one ‘house prices measured in gold’ article still holds MoneyWeek’s ‘most commented’ record.)

But the proud, egotistical Dominic Frisby is a rotten investor. One of the first rules of investing is that ego and pride should both be left at the door, along with opinions, prejudices, biases and bigotries. Humility is everything. And if you’re not humble, it won’t be long before Mr Market teaches you to be.

The canny Dominic Frisby, who, believe it or not, does appear on occasion, had a rather different interpretation. Zero interest is an extremely positive sign.

As a buyer, there’s nobody to compete with for stock. You can get it cheaply. You can buy it quietly. You can take your time. There are plenty of people still to enter the market and then shout “buy uranium!” once they’ve taken a position.

Uranium has bottomed out

I’m not saying uranium is going to shoot up from here. Memories of the 2006 bubble still linger. Bubbles take many years to unwind. But I am saying that the low is in – at least in my opinion.

The uranium price itself (or rather the uranium oxide price) is mired at around $35 a pound. After two years of post-Fukushima declines from a high of about $70/lb, it has been flat at $35/lb since July.

It’s hard to see how the price can fall much lower from here. Most deposits are unviable at $35/lb. Broadly speaking, $50/lb is the cut-off – so development of new mines has all but stalled. Exploration has all but dried up.

Current uranium production stands at about 130 million pounds a year, while usage stands at around 180 million. The shortfall is made up from old Russian military stockpiles. How long will these last? Your guess is as good as mine.

But electricity consumption is on the increase worldwide and more reactors are being built, so demand will at least remain steady, if not grow.

So how can you benefit? It’s still too early in the cycle to buy explorers and developers. The way to play it is either to go for the metal itself, via the Toronto-listed Uranium Participation Corp (TSX: U), or to go for a large producer.

Below, is a chart of Uranium Participation Corp, which tracks the uranium price. You can see the falls in 2011, the long grind lower and then that ‘triple bottom’ – a low in late 2012, re-tested successfully in March 2013 and again last October – where I have drawn the dotted red line.

If you were to buy this stock, the obvious place for a stop is just below that red line.

Uranium Participation Corp

Source: StockCharts.com

Alternatively, there’s a US-listed exchange-traded fund which tracks uranium miners and developers. But I still favour the world’s largest pure-play producer, Cameco (TSX: CCO; NYSE: CCJ). I recommended it back in December, since when it’s had a pop and a pullback.

Anything can go wrong in mining, and it usually does, particularly if the metal in question is uranium. So make sure you have a clear exit strategy. But C$21-22 seems a reasonable entry point. There’s resistance at $25. I have $30 as an eventual target.

My stop-loss is just below the late 2012 lows at C$16. But I’d be surprised to see it fall below $18.

Here’s the chart. What do you think?

Uranium Participation Corp share price

Source: StockCharts.com

• Life After The State by Dominic Frisby is available at Amazon. An audiobook version is available here.

• Follow @dominicfrisby on Twitter.

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22 Responses

  1. 05/02/2014, Mike G wrote

    Not so sure about uranium, Dominic. Interesting article in The Week mag very recently. All about thorium. It seems it’s a far better bet than uranium for non-military nuclear use. Out of fashion and ignored for years it now seems to making a come-back. My bet’s on thorium.

    • 28/05/2014, PierreGuillot64 wrote

      Interesting comments on thorium. How do you invest in it? Are there ETFs?

  2. 05/02/2014, philadam wrote

    I have been following Global X Uranium ETF for a few months and it is now getting close to a buy position. it spiked upward around 21st Nov and has been having higher highs and lower lows since October 2013. Also the MACD has been compressing since mid 2012 all are a classic sign of a breakout.

    Never really agreed with you on Gold I made money on the way down, but I think you have got this one on the button, but like all trading you have to be patient.

  3. 05/02/2014, Gobosly wrote

    I suspect you are quite right on this as it is so unloved at the moment. Your arguments are all compelling, although I think it is likely to be a slow steady rise with hickups along the way as demand and sentiment on this will not change overnight. Only for the brave, but I agree it is a good long term bet.

  4. 05/02/2014, TJ13 wrote

    Thanks for expressing your honesty and opinions Dom. I for one, do take all economic commentary with a pinch of salt, but it’s nice to read humble words sometimes.

  5. 05/02/2014, David Cockburn wrote

    Sorry to hear your previous article only got a response from so few people and I agree that is a good contrarian test.
    I’ve been long CCJ for ages and lost money so far but will wait for some evidence of an upward shift in the spot price before I add more. I’d be persuaded if the 20 day moving average crossed the 60 day MA for example.

  6. 05/02/2014, DB4rc wrote

    I AM surprised no one responded to your initial commentary lasy year but your analysis is sound and likely to bear fruit in time. It looks like the Seed Wave is forming but there may yet be a test of that strong support line to exhaust the stronghands before a new larger Seeed Wave and the Impulse can start. I suspect that will happen before Thorium and others come into the picture.

  7. 05/02/2014, Bill Pritchard wrote

    Uranium in nuclear power was all about bombs, that is why thorium is all about the future, a much safer bet, the Norwegians and chinese are both investing in it, even though it was originally a british idea. So too, all the flooding on the Someset levels is to give some sort of safety to the Hinkley Reactors, all of them there looking seriously endangered at the moment, River Parrot in flood! Personally, I’ll only invest in where to bury nuclear waste, like Anglesey Mining plc, still the best bet for me, a realist.

  8. 05/02/2014, Mark dK wrote

    Shhhh Dominic!

  9. 05/02/2014, Bill Pritchard wrote

    Thorium is the real future, not uranium. We’ve got an old nuclear site with possibilities here in Wales, the Trawsfynydd site. At the moment the Welsh Assembly Government has just given it a Tax Free Investment Status. It still has lots of old nuclear fuel rods still buried there and the nearby Traws lake is highly radio-active, but why not build a Thorium Ractor there? I can take care of any of the headless chicken brigade locally, or the welsh fascists, who still think they run the place, but it’s a very good investment opportunity!

  10. 05/02/2014, Andrew wrote

    Ron Meisels technical analyst at NA Market letter picked this one out about the same time as you

    http://www.bnn.ca/Shows/Market-Call.aspx

  11. 05/02/2014, AV wrote

    ‘So when an article gets ignored or overlooked, you skulk back to your bunker and feel rather bad about things.’

    Poor Ed Bowsher!

    Its very clear that no one reads his articles or at least no one cares about them anyway. There are mostly zero comments on what he writes. The only article which attracted some comments was his article on Gold!

    But that is not surprising as readers must be bored of reading the same scare stories MW has been dishing out for nearly 2 years – none of which have come to pass (thankfully).

    At least an article on Uranium is better than continously recycled stories on Gold, housing, Japan, Gold and housing, Gold and Japan etc etc.

  12. 05/02/2014, Ivon Coles wrote

    I like your views on uranium. I have recently been doing a little research myself and have taken some passions in UEC / Uranium Energy Corp.

    There are some very interesting views on YouTube with Casey research and Rick Rule, well worth a look.

    Keep up the great work Dominic, oh, loved the Debt Bomb Vid.

  13. 05/02/2014, RF wrote

    Glad to hear that someone else now taking an interest in Uranium as need for my Uranium ETF to start making a profit – went in too early!. However also invested in Canadian explorer (Fission Uranium)who have found the largest new potential UR deposit in Canada. The test drills are coming back with incredible results. Believe still a long way for the stock to go upwards as am sure it will be bought out by Rio (who bought out Fissions last find)if they have any sense.

  14. 05/02/2014, RF wrote

    Following my last comment this ius the latest drill results from Fission Uranium. Looks good!!

    Fission Hits 11.10% U3O8 Over 3m in 4.22% U3O8 Over 8m; Wraps Up Summer Assays
    Final summer assays confirm broad mineralization, highlight western end of discovery
    KELOWNA, BRITISH COLUMBIA–(Marketwired – Feb. 5, 2014) – FISSION URANIUM CORP. (TSX VENTURE:FCU)(OTCQX:FCUUF)(FRANKFURT:2FU) (“Fission” or “the Company”) is pleased to announce assays for the final twenty holes of the summer 2013 drill program at its Patterson Lake South (PLS) property in Canada’s Athabasca Basin. Of particular note is hole PLS13-109 (line 750E) which returned 4.22% U3O8 over 8.0m including a higher grade interval of 11.10% U3O8 over 3.0m. Of additional note is the broad mineralization returned by the recently discovered R600W zone, the land-based westernmost zone of the PLS drill-hole discoveries. This highlights the prolific and highly prospective nature of the PL-3B corridor which hosts the 1.78km strike length identified so far.

    All five lake-based holes and five of the six holes on R600W returned considerable mineralization. Nine additional regional holes were unmineralized, however, the data provided by these holes has contributed significantly to Fission’s understanding of the geological setting and controls of mineralization at PLS.

  15. 05/02/2014, LN wrote

    Your previous article I had read and you had stated demand at 180 mil lbs. for uranium whereas WNA states demand to be around 66k tonnes or about 145 mil lbs. So if you could explain your resource difference that would be great. I’m not even sure how accurate the WNA demand number is as I believe it includes uranium that Japan is stock piling. Since it’s not being fed into reactors can we consider that to be demand?
    The latest greatest mining junior is Fission (FCU )but if we consider their resource to be around 50 mil lbs of U then they are currently trading around $7.46 mkt cap/U lbs. FCU doesn’t have a 43-101 yet so I’m basing that 50 million on what an analyst had posted as best guess. Then we have a fairly decent company UEX Corp ( UEX ) which shares mine projects with Areva and is somewhere around 20% owned by Cameco. They seem to be sitting on a minimum 87 million lbs U confirmed with a 43-101. A lower overall concentration than FCU and a little deeper but definitely decent. This company however sits at about $1.25 mkt cap/U lbs. So although I’ve held FCU and CCO, the potential upside once spot price begins to move, would, I believe, be with UEX.

  16. 06/02/2014, Downunder wrote

    Agree with your thoughts. Have bought paladin here in Australia. They have sold part of their flagship project in Namibia to the Chinese in order to fund debt maturities. Higher cost than cameco but greater leverage to the upside. Great book btw. Read it in a day.

  17. 06/02/2014, Gregg wrote

    Dominic, you are partly right. Uranium is being shunned now due to politics that are creating many uncertainties. Once things change (who knows when that might be?), then in relatively short order prices will go up suddenly and then plateau, in my opinion. Some of who are in now might make a lot of short-term gains.

    I think that with all of the great finds (FCU’s is an obvious one), the activity in the Athabasca region, and the ability of EFR and Cameco to ramp up production, there won’t be any serious long-term shortfall. Plus, China is actively pursuing its own supply in Africa. There might be (probable?) a temporary supply crunch, but after that, it seems like there will be tons of uranium to meet demand.

    Also, while I also have CCO which I believed would do very well, now I’m not so sure. The Canadian tax authorities are “after” Cameco for what they believe is tax evasion. So there is the possibility that Cameco might get hit with a very large tax bill that would definitely affect its share price. And in the States, EFR may be in court regarding standards infractions.

    I think companies such as FCU and possibly URE might offer more potential.

  18. 06/02/2014, Aaron wrote

    Don’t feel so bad Dominic. I did read your article last year and was interested. I too think Uranium only has one way to go. I have a trade on Cameco live at the moment, currently I’m down but expecting a shift this year.

  19. 07/02/2014, srood wrote

    Nice article Dom, although am not to sure on your take on juniors and developers. With the price of U what it is, id be looking at any company developing within the insitu recovery space. Most are near profitable at the current spot price. Most promising in this space is peninsula energy out of Australia. Big pounds on two mining friendly continents and producing by years end..good returns on offer even in comparison to the majors. Higher risk i know but worth a look.

  20. 07/02/2014, Mark wrote

    Thorium? Hmmm, think twice. First of all it will take a long time (and a lot of money) to convert the vast majority of reactors to handle thorium. I’m not saying it can’t be done, but it isn’t as easy as just sticking thorium into a reactor core. There will be reactor modifications needed, regulatory approvals, operating license changes, etc. to do, and that will not take months but many years to do.

    Second, thorium is MUCH more abundant than uranium. In fact it is a contaminant in just about all rare earth operations, and they treat it as a waste. They’d be happy to give it away for free. Thorium is easy to get. And here is the crux … even if/when the industry converts to thorium, how much will you get for it, when it is readily available? There will be too much supply, so I don’t think it would be a great investment. On the other hand the power generation technology for thorium, that could make money (cheap, abundant fuel, power demand on the rise, greener option than uranium) – but how long before this will be implemented.

    In the short term (next 5 to 10 years) I think investors in uranium have a chance of making some good money. Unless there is another incident … I hope not, but who knows.

  21. 07/02/2014, Linda Weejes wrote

    Dominic, I believe the uranium story is a slowly evolving one that has an inevitable conclusion. The energy requirements of China and Japan alone are calling for the long awaited renaissance. China has ambitious plans for nuclear energy plants as a coal replacement particularly given their air polution crisis. Japan cannot afford natural gas as a viable energy source. The USA – current plants will require new fuel sources now that the Russian agreement has ended. The Middle East is looking at new build. I am long Cameco CCO, Uranium Participation U, Uranerz URZ, and Uranium Energy Corp UEC. I believe this is the start of of a positive long term trend. Incidently, I always look forward to your articles. – Linda in Canada

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