Will Uranium Prices Continue to Surge?

Uranium prices have increased rapidly in recent weeks. An investment in Cameco Corporation (TSX:CCO)(NYSE:CCJ) is the best way to play this trend.

| More on:
The Motley Fool

Over the past few weeks, without anyone seeming to notice, uranium prices have crept up by $3.50 per pound. How has this happened? Is this just the beginning of a major uptick? And how should you react?

Security of supply

As it stands, the world is well supplied with uranium. Production has managed to increase in the last couple of years, and demand has fallen in the wake of Japan’s Fukushima disaster. But that could soon change.

One of the issues concerns security of supply — over half of the world’s supply comes from Russia, Kazakhstan, Uzbekistan, and Niger. And sanctions against Russia are making uranium buyers very nervous. So they are ordering more of the physical material before it’s too late.

There have been other supply issues recently. Some producers have been shutting down production recently due to low prices. Cameco Corporation (TSX: CCO)(NYSE: CCJ) has had to endure a worker strike at its MacArthur and Key Lake mines.

Long-term fundamentals remain intact

Better yet, there are plenty of drivers for uranium on the demand side. For one, China hopes to be a world leader in nuclear power by 2020, despite having only 15 nuclear power-generating units today. The country hopes to speed up construction for 29 plants currently being built, and also has ambitions for an additional 200 plants. Even after 2020, China hopes to add 10 nuclear plants per year.

Japan is another potential catalyst. The country has had to pay through the roof for energy since canceling its nuclear program, and restoring nuclear power would relieve much of that burden. Just last week, the Nuclear Regulation Authority said that a two-reactor nuclear power station in Sendai had met safety requirements required for a restart. This means the plant could restart by early 2015. And that could be just the beginning.

Cameco: the best way to play this trend

The nuclear fallout from the Fukushima disaster have not been kind to Cameco nor its shareholders; since March 2011, the company’s shares have fallen by about half.

But remember, Cameco has access to the world’s highest-grade uranium reserves, and does not face the same geopolitical risk as some of its rivals. The stock has also been held back by the strike, but a tentative deal has now been reached with the union.

To sum up, this company has done everything it can to weather the low uranium price. And these kinds of experiences can often be good for a company, forcing them to be more efficient. So if the uranium price does recover, like it should eventually, then Cameco shares could benefit.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

A person builds a rock tower on a beach.
Dividend Stocks

CPP Pension: Boost Your Payouts by $5,232 per Year

You can raise your after-tax CPP by making RRSP contributions. Alimentation Couche-Tard (TSX:ATD) is a good RRSP stock.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

1 Stock That’s Just as Hot as Tesla Stock  (Without All the Hype)

Sure, Tesla stock (NASDAQ:TSLA) has the headlines, but this other stock has far more growth, with even more on the…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

Here are three no-brainer stocks that are suitable for anyone getting started on their investing journey.

Read more »

Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

A plant grows from coins.

3 Growth Stocks to Buy With $3,000 for the Next 3 Years

These growth stocks have the potential to deliver above-average returns and compound investors’ wealth.

Read more »

Young woman sat at laptop by a window

Here’s Why I Think Restaurant Brands Is 1 of the Best Bets on the TSX Today 

Here's why Restaurant Brands (TSX:QSR) could be one of the best stocks to buy for long-term upside in this current…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

This 5% Dividend Stock Pays Cash Every Month

This monthly dividend stock offers cash every month, but also returns that continue to climb higher from being in a…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

3 Top Dividend Stocks That Keep Raising Their Payouts

These three TSX stocks are ideal buy as they consistently raise their payouts, depicting their healthy financials.

Read more »