Profiting From The Coming Uranium Supply Crunch

The coming supply crunch

There are approximately 392 operating nuclear power plants worldwide which provide around 15% of the world’s electricity. These operational reactors require a total of 152 million pounds of uranium each year. However, current annual production of uranium is only 118 million pounds.

The shortfall is being made up the by Russian Megatons to Megawatts program which takes Russian bomb-grade uranium material from more than 10,000 nuclear weapons and converts it into a diluted form suitable for use as commercial reactor fuel. The bad news is that the program comes to an end in 2013 leaving an annual shortfall of around 34 million pounds of uranium.

Long term outlook

In addition to the current stock of operating reactors, there are currently 65 new nuclear power plants under construction around the world. China alone plans to build 23 nuclear facilities by 2020, and has another 120 in the proposal stages. Thanks to all this new construction it is estimated that by 2020 uranium demand will reach 255 million pounds.

How to play higher uranium prices

Both the short-term supply crunch and the long-term fundamentals suggest higher uranium prices. The question is, what’s the best way to capitalise on them?

Right now there isn’t an Exchange Traded Fund (ETF) the tracks the price of uranium, however Uranium Participation Corp. [U] provides an excellent proxy for the price of the commodity since it invests in and holds physical uranium.

Another way to gain exposure to the industry would be via the Global X Uranium ETF [URA] which is listed on the New York Stock Exchange. The fund includes leading uranium miners such as Denison Mines, Kalahari Minerals and Extract Resources among its top 10 holdings.

  1. An investment in Uranium Participation Corp doesn’t give you the leverage an investment in a uranium miner gives you.

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