Bundespost 1957
The following is a guest post by Fred Carach, a.k.a. The Riverboat Gambler.
The March 2011 Japanese nuclear disaster gutted the uranium mining industry big time. Price declines in the range of 50%-80% from top to bottom were common. A bottom appears to be in but the issue at hand is can the nuclear industry recover? Popular belief about the industry’s future is that it will probably never recover. It is just too dangerous.
What popular opinion is ignoring is that the nuclear industry is not a luxury that can be dispensed with, but a critical necessity.
The great white hope of the general population is the renewables solar and wind. These perennial solutions have been touted since the oil crisis of the 70s. What is shocking when you look at solar and wind is how amazingly little has actually been built. Everyone talks endlessly about these saviors but production rarely happens. There is a very sound reason for this. The more you dig when you investigate wind and solar, the more problems you discover. Humans are strange creatures. They want their energy 24/7 and not just when the wind blows or the sun shines. Go figure!
(note from 101C: agreed 100%. The structural challenges with large-scale industrial wind and solar are baseload and storage. The wind doesn’t blow all the time, and the sun switches off at night. In the meantime, power has to come from somewhere, and nuclear plants deliver constant baseload power, 24/7/365)
Cool old stamps from the German Republic of the 1950's (description: definitive stamp series pictures from industries, economy, agriculture and culture -- also known as Saar IV)
The ultimate proof of this is that despite Japan’s nuclear disaster reactors continue to be built. Today there are 443 operational nuclear reactors. An additional 62 are under construction and 156 are in the planning stage. Only Germany appears to be willing to pull the plug with out regard to the consequences. It still intends to close all nine of its reactors by 2022 and rely on the nuclear reactors of France and the Czech Republic to supply them with their energy requirements. How sweet it is!
Today’s 443 active reactors require about 180 million pounds of uranium per year. Global production is 130 million pounds a year. The 50 million pound gap is being made up by a limited fuel reprocessing capacity and Russia, which is dismantling its nuclear warheads under the so-called HUE (highly enriched uranium) Agreement. This program ends in 2013. Russia states it will not renew the program because it is running out of warheads. There is at least a 25 million pound global annual shortage and no mine in the world produces more than 20 million pounds a year.
US nukes alone consume 57 million pounds a year while we produce only 4 million pounds of uranium a year. Half of US annual uranium consumption is being supplied by Russian nuclear warheads.
Kazakhstan is the leading global producer at 27% followed by Canada at 20%. These two leaders account for 47% of the world’s production. Almost all of Canada’s production comes from the fabulous Athabasca Basin. The richest known uranium ore body on earth.
The price of uranium peaked in July of 2007 at $136 a pound. Today it is selling at $52 a pound. This is a big problem. The industry breakeven point is around $65 a pound. The present is grim but the future s bright. The policy that I follow is to establish an initial position in all the uranium plays that I like but not add to them until uranium breaks through the $65 a pound level.
The largest pure player in the industry is Cameco, which I do not own. I am an unrepentant small cap investor. The stock peaked in 2007 at $56 and now sells at $20 and is currently profitable. Once you leave Cameco, the carnage really begins. The number two in the industry is Denison Mines its 2007 high was $15 and it is now selling at about $1.50. It currently has a market capitalization of $704 million. It is currently producing uranium but at a loss of about a penny a share. If uranium breaks above $65, a pound its profit potential is awesome. Beneath Denison, I own a mix of non-producers that have been mauled by savage price declines but who own huge acreages of uranium mining claims in relation to their capitalization, which has been decimated. They are listed alphabetically with a brief thumbnail sketch.
ESO Uranium- this is a stock whose value has been absolutely pulverized. Its five-year high is $1 and it is currently selling for about 10 cents a share. It has 112 million shares outstanding. This means that the whole company is selling for roughly $11.2 million dollars. The Paterson Lake property is its flagship property in the fabulous Athabasca basin. It owns the mineral rights to 180,000 acres in the basin. If my math is right, the market is valuing each acre of land that it owns at less than $100/acre. It also has additional properties to which I am assigning no value.
Energy Fuels- the five-year high on this little jewel was $4.94 a share and the five-year low is 9 cents a share. It is currently selling for about 34 cents. It has about 124 million shares outstanding for a total capitalization of about $42 million. It is concentrating its limited resources on building the Pinon Ridge Mill in Colorado, the first uranium and vanadium mill built in the United States in over 30 years. Currently there is only one uranium mill operating in the United States in Utah. Energy has acquired six ex-producers located in Colorado and Utah that can supply the mill with ore.
Fission Energy- the five year high on this stock is a $1.40. It is currently selling for about 85 cents. It has 102 million shares outstanding or a total market capitalization of $89 million. This company has ten projects located in the Athabasca basin and in Quebec. Its Davy lake project alone is 185,000 acres. This is another acreage rich play.
Forum Uranium- the five-year high for this stock is 81 cents and the five-year low 2 cents. It is currently selling at a whopping 9 cents a share. There are 160 million shares outstanding. You could buy out the whole company for a princely $15 million. Forum has 5 projects, which are located in the Athabasca basin and the Thelon basin, Canada’s second rated uranium play. For a stock selling at 9 cents a share, it offers extraordinary value. Its Key Lake Road project alone located in the Athabasca Basin comprises about 223,000 acres and its North Thelon project alone has 607,000 acres.
Now at this point the astute reader (unless he has read my book) should be questioning why I am so keen on acreage and mining camps or plays and why I never mention ore bodies. After all, if there is no ore then the mining claims are worthless. Not really. Do you have any idea of how many millions of dollars — which the juniors don’t have to begin with — would have to be spent to be reasonably certain as to whether or not a mining claim like Forum’s Key Lake Road project with its 223,000 acres did or did not have an economic ore body?
Penny mining stocks are not paid to do geological work on their mining claims. However, they should do $200,000-$300,000 if possible every year in geological work to try to prove up their claims. Junior exploration companies are paid to assemble land packages in strategic, proven mining camps or mineral plays and to hold on to them until the next turn of the wheel sends all the stocks in the mineral play skyrocketing upwards. All will go up. The market does not discriminate and the junior penny stocks will go up more than the majors, even if later it turns out that they have nothing.
If it did not work that way, I would not be wasting my time with penny mining stocks. The market is only concerned about land packages in strategic locations. And the larger the better. Proving up ore bodies is the job of the majors.
[from 101 Centavos -- and this is why the nifty mining maps that I get from Northern Miner are so interesting. They detail which exploration company holds what claim, and how close to current or past producing mines.]
Strathmore Minerals — The five year high on this stock was $5.04 a share and the five-year low was 13 cents a share. It is currently selling for about 45 cents a share. It has 89.9 million shares outstanding. The total market capitalization is about $40 million. To my mind, its 86,700 acres in Wyoming and New Mexico are the finest uranium properties owned by any junior in the continental United States. The market is currently placing an absurd value on Strathmore’s holdings of $460/acre.
UEX Corporation — The five year high for the stock is $9.43 and the five-year low is 36 cents. The current price of the stock is 92 cents a share. There are 203 million shares outstanding and the total capitalization is about $188 million. The share price of this high quality junior was absolutely pulverized. It has 824,000 acres of mining claims in the fabulous Athabasca Basin. Ten of its properties in the basin are joint-ventured with AREVA Resources, which is owned by the French government. There is nothing more positive for a junior than to have senior sponsorship.
Uranium Resources — The five-year high for this stock was $14.99 and the five-year low was 36 cents. The current price for the stock is about $1.00. There are 94 million shares outstanding and the current market capitalization is $95 million. This producer has been in operation since 1977 and has produced 8 million pounds of uranium from its 183,000 acres in Texas. It specializes in what is referred to as in-situ uranium recovery. In this process uranium is leached out of the ground and rises to the surface through a web of pipes.
If you have read this far I think you will agree with me that these stocks have been absolutely pulverized and represent enormous value if uranium can sustain a price above $65 a pound. One final word of warning. If you read my book you know that I am a fanatic on diversification. If you put more than 1% of your investment capital in any of these plays other than Cameco and Denison you are on your own.
[from 101C ] So there you have it, readers, an alternate view on the function of junior mining and exploration stocks. Coming up next post, an update on the Centavos portfolio, featuring some new additions.
As always, huge disclaimer on the preceding stocks. Fred Carach is describing junior mining stocks he himself owns. Readers may have different risk profiles. Mining stocks are notoriously volatile, and not for the risk-averse. All are encouraged to do their own research and due diligence, and bundle up well outside, because you know, it’s wintertime.
Thanks for the tip. I never considered investing in uranium before.
Wayne @ Young Family Finance recently posted..How to Have a Cheap Vacation
The ultimate payoff goes to those who are willing to buy when an investment category is in the gutter.
Most are not willing.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Very interesting stuff 101. Uranium is something that I thought was really poised for a comeback until the accident in Japan. I know that there’s quite a bit of exploration going on out where I am, but there have been only a few permits issued for in-situ mines. Other than that, happy spinning, right?
Jeff @ Sustainable Life Blog recently posted..Hurdles on the way to the Goal
The ultimate issue is whether nukes are a luxury or a necessity?
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Permitting of new mines in the US has been excruciatingly slow. Whether or not that will change after 2013 is an interesting question.
That’s really interesting. It sounds like a great value play. I’ll have to add these to my watch list. When do you think the uranium price will recover? 5 years?
retirebyforty recently posted..Frugal & Healthy Tip – Learn To Cook
Why not just track Uranium prices at Kitco and make your own decision?
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Will it go back to around $140/lb? Perhaps it will take two or three or 5 years. Personally, I’m in for the long haul on this one.
The serious money in investing is always made by the long-term investor.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Loved the post 101, eventhough I “track” some of the stocks mentioned above I have not ventured yet into Uranium. I think it is a matter of time before Ur prices move, there’s no escape from nuclear energy!
BeatingTheIndex recently posted..Why is Parallel Energy Trust in The Penalty Box?
That’s right, Mich. Personally I’d like to see more development with thorium reactors as an energy source, but for now we’re stuck with uranium.
The author agrees.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Love the graphics.
I remember when the tsunami hit Japan–so devastating! I lived in Japan for a few months and fell in love with it.
On a side note, I was surprised to hear on NPR yesterday that the City of Houston gets 33% of its energy from wind farms in Western Texas! Pretty amazing.
Amanda L Grossman recently posted..A Wolf in Sheep’s Clothing: Timeshares Included in Social Buying Site Travel Deals
I think if you check it out you will find that the 33% number is the “NAMEPLATE” capacity that can be achieved when the wind is optimal. When the wind doesn’t blow the capacity is zero.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
This is one of the most informative guest posts I’ve seen. My knowledge in mining is confined to gold and silver and I soon hope to expand my horizons. This site is definitely my go-to source for mineral and resource investment.
John @ Married (with Debt) recently posted..Combining Finances and Efforts
I of course agree with your wise statement.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Great disclaimer on the “one percent of your portfolio.” I love these opportunities and found this a fascinating read…but if you’re going whole hog on any of these, to reiterate Fred’s words, “you’re on your own.”
Great guest post. Thanks!
AverageJoe recently posted..Find Your Perfect College
You might want to check out my book on Amazon.com
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Fred is there any Uranium ETF out there?
SB @ One Cent At A Time recently posted..Ways to Lower Your Cell Phone Cost
See the below comment on uranium ETFs.
I have a problem with ETFs because they are capitalization weighted. In other words the top two stocks will count for the majority of the index and the smallcaps will count for almost nothing. The small caps are where the action will be.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
I am not dumber as a result of reading this post! I don’t fool with single stocks at all, but would like to one day when I have the time to actively manage them. Reading stuff like this helps build my knowledge base and pave the way for the future. Love the advice at the end of not putting more than 1% into penny mining stocks. Diversification is key.
Matt recently posted..Spending Money for Sex on Valentine’s Day
I am glad you found it interesting.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
Great research! For most investors an ETF would be less risky by providing diversification. Global X Uranium ETF (URA)is a pure play and Market Vectors Uranium and Nuclear provides additional diversification by including the end users in the portfolio.
Ken Faulkenberry
AAAMP Blog recently posted..Bank Stocks – High Risk and Erratic Dividends Symptoms of Long Term Problems in Banking System
See my above comment on ETFs.
I’m curious as to what you think about natural gas. Now that fracking technologies seemingly improve by the day (and complaints grow louder, too) do you think ever-falling prices for natural gas might make it the substitute for electricity? Seems we have plenty of it, and extracting it becomes easier and easier all the time.
The industry analysis is interesting. Given that Cameco seems to be the only one that can turn a reasonable profit with current prices, is there the potential for a Cameco buying spree of smaller firms? Does Cameco have any real advantages that it can apply to other mines?
I don’t keep up with mining at all, but this is really interesting.
JT recently posted..Wall Street Hates Monopolies
I am neutral on natural gas.
Major mining stocks have just started to buy out junior uranium stocks. The major Rio Tinto just bought out Hathor in a bidding war with Cameco.
Fred carach recently posted.."Getting Rich Through Homeownership – The End Of An American Dream," by Fred Carach
That Rio Tinto/Hathor deal was very good for yours truly!
It is nice to know that there were others who profited from that play.
Fred carach recently posted..Buying Uranium When It Is In the Gutter
Interesting contrast in color and style between the East German and West German stamps. It’s boom or bust with these stocks.
The Biz of Life recently posted..Boomtown Girls
There is a lot to be said for buying when they are in the gutter.
Most people will not and that is why they will never have anything.
Fred carach recently posted..Buying Uranium When It Is In the Gutter
It’s Bauhaus versus Heroic Workers Unite!
[...] to make magic happen, however I’d like a cheaper auto insurance quote.101 Centavos presents Buying Uranium When It’s in the Gutter posted at 101 Centavos, saying, The March 2011 Japanese nuclear disaster gutted the uranium mining [...]
[...] Centavos : Buying Uranium When It’s in the Gutter – The March 2011 Japanese nuclear disaster gutted the uranium mining industry, but is it now [...]
[...] from 101 Centavos published Buying Uranium When It’s in the Gutter , saying, ‘The March 2011 Japanese nuclear disaster gutted the uranium mining industry, but is [...]