Uranium and Uranium Stocks Top Performers of 2006

From President George W. Bush’s push to ramp up the country’s nuclear industry to Asia’s growing uranium demand to the catastrophic disaster at Cigar Lake, yellowcake has seen an extremely bullish year. And analysts are calling for an even better year in 2007.

Uranium began the year at about $36.25/lb. Today’s weekly price is $72.00/lb, showing a yearly gain of 98%! Compared to the entire metals complex, only zinc and nickel had better years with gains of 123% and 161%, respectively.

In a recent analysis, Scotiabank Vice President, Industry and Commodity Market Research Patricia Mohr said uranium ”and will likely be the top performer in 2007” as the global market moves toward more nuclear power generation.

Mohr forecast uranium prices to average $80 a pound next year, possibly ending the year close to $90. This year’s average is roughly $48.10 thus far.

”The current upswing in uranium prices represents a ‘secular,’ transformational change in global energy markets, related partly to a shift by utilities from high-priced fossil fuels, rather than a ”˜cyclical’ upswing,” she said.

Mohr said that international utilities are currently seeking 60 million pounds of term commitments from miners. However, about 440 reactors require about 154 million pounds of uranium from mines and stockpiles each year, and the stockpile of uranium that resulted from the disassembling of nuclear weapons by the Soviet Union is rapidly dwindling.

”While exploration activity has surged for uranium – across Canada, Australia, Africa and in Kazakhstan – there has been little improvement in mine production,” she said.

According data by the Uranium Information Centre, mines only supplied roughly 48,000 tonnes of uranium last year and the rest was covered by inventories.

Mohr suggested actual mine output probably dropped this year, and technical difficulties may limit gains next year.

Cameco’s Cigar Lake would have been ”the first big increase in global supply in many years,” ramping up production to 18 million pounds per year, said Mohr. But the catastrophic flood at the underground mine will delay shipments until at least 2008.

In a recent newsletter to subscribers, Jay Taylor, Editor of J Taylor’s Energy & Energy Tech Stocks and J Taylor’s Gold and Technology Stocks, said there are no significant new supplies of uranium scheduled to come online until 2010, ”but by then there will be new nuclear power plants hungry for additional sources of uranium.”

Currently, there are 28 reactors under construction around the world and another 62 being planned. Japan intends to add 11 more by the year 2010 and China hopes to add 24 to 30 by 2020.

Taylor agreed that higher prices in time beget more supply, but said the time required to find a deposit and get it into production can be a decade or longer.

According to Taylor, there has never been a market like the current uranium market. He called the metal ”almost recession proof.”

”What is most remarkable is that even when oil and gas markets have run through considerable corrections, uranium prices have just kept on rising,” he said. ”The market forces above are not only bullish for uranium but I believe make this metal almost recession proof.”

Mohr alluded to this as well, saying, ”Nuclear energy is used for ”˜base load’ electricity generation and will be little affected by an expected modest slowdown in global growth in 2007, using ”˜purchasing power parity’ estimates.”

Taylor thus concluded, ”with a major portion of the world’s electricity being supplied by nuclear power plants, and with those plants needing to keep supplying electricity even in a major economic decline, and with supplies of uranium dwindling, it is hard to see how uranium prices would fall, even though the cost of mining uranium may decline in a deflationary environment.”

2006 Metals Performance

In addition to uranium, precious and base metals also had robust returns in 2006.

Silver is up 43% after starting the year at $9.04/oz, trading today at $12.89/oz. Gold has risen 22%, with a year-to-year gain of $110, closing today at $631.30/oz.

Platinum hit highs of $1400/oz in November on ETF speculation, but has since fallen back to trade at $1119/oz. The white metal is up 15% since starting the year at $972/oz. Palladium is up 24% after opening 2006 at $265/oz and closing today at $329oz.

In base metals, nickel began the year at $6/lb and is now priced at $15.71/lb, a gain of 161%. Zinc in the next best performer with a 123% gain, from 85 cents to $1.91/lb. Lead is up 43% for the year at 74 cents from 52 cents per pound. Aluminium has seen as gain of 25% from $1.01/lb to today’s price of $1.28/lb.

After a topsy-turvy year, copper is trading at $2.85/lb after beginning 2006 at $2.07/lb and hitting contract highs of $4/lb in mid-May.