How to Play the Coming Nuclear Renaissance?

A speculator is someone who can look into the future and act now. In early October, I saw a major development in the uranium sector as I began seeing signs of a major breakout of many of the uranium miners, via the Global X Uranium ETF (URA).

Uranium stocks have tripled since that time and are now taking their first major breather. During this time we have seen major investors come into the market specifically from China. This interest in uranium was highlighted back in June of 2010 when China National Nuclear signed a contract with Cameco (CCJ) to supply 23 million pounds of uranium. This showed how aggressive China has become and took a large amount of the supply off the table. Cameco is on the record looking for additional acquisitions. Already it has inked a deal with Uranium Resources (URRE) to explore a property in south Texas. Paladin (PDN.TO), an emerging producer, bought the controversial Michelin Property from Fronteer Gold (FRG) for about $250 million in November. Russia's state-owned ARMZ purchased Mantra Resources for almost $10 a pound of uranium in the ground. Mantra controls the Nyota deposit and will be able to produce 5 million pounds of uranium a year. This is proof that the nuclear industry is heading into consolidation. This year expect to hear more news, especially as prices pull back to support, like what is occurring now.

Cameco Chart

Market corrections are valuable. Uranium stocks are all pulling back to support and reversing higher. Over the past few months I have highlighted the role nuclear is playing in emerging markets, especially China, Russia, India and South Korea. Even the Middle East, which has vast resources of oil, is looking to expand its nuclear capability. I believe investors will look back at this correction as a great buying opportunity. Acquiring companies may use the next few weeks to make deals as share prices take a breather. Similarly, Fronteer Gold was acquired by Newmont (NEM) specifically during the gold (GLD) consolidation in January. Large companies use profit taking and sell-offs to make offers.

All over the world nuclear is being recognized as an integral part of clean energy generation in a developing and expanding world. President Barack Obama has announced more than $8 billion in federal loan guarantees for the first nuclear power plant in the United States in close to 30 years. Obama says investing in nuclear is critical for the United States as it will reduce US dependence on foreign oil, and help the US economy by creating high-wage jobs. The Middle Eastern turmoil is a wake-up call to our elected leaders in Washington who have not been proactive with developing efficient and clean energy sources. One pound of uranium is equal to 20,000 pounds of coal. Despite the “Deepwater Horizon” and “Upper Big Branch,” there has not been a push for safer and cleaner nuclear energy.

Unfortunately, the US has been asleep at the switch like Homer Simpson and the earliest a new reactor will be built is late 2011. Southern Company has a pending application for a reactor in Georgia, which it says will create 3,000 jobs and generate power for 1.4 million people. However, I believe leaders around the world are realizing nuclear is the only viable choice for clean energy. Obama, who has a large constituency of environmentalist, has given the green light on nuclear. It doesn’t take a high IQ to realize the demand from emerging economies for nuclear power. There are supply concerns as Russia is not renewing its agreement to supply the US with converted uranium from nuclear weapons. The US must move fast and domestic uranium miners are just beginning their secular bull market trends. I believe we will begin seeing a major consolidation in this sector as many of the larger producers -- such as Cameco, Uranium One (UUU.TO) and Paladin -- as well as sovereign countries continue to acquire reserves. Look for deals to occur on pullbacks.

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