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Investing in Uranium's Rebound

Brian Hicks

Written By Brian Hicks

Posted November 19, 2013

The price of uranium took a big hit after Japan’s Fukushima Daiichi power plant experienced a meltdown as a result of a devastating earthquake and subsequent tsunami on March 11, 2011.

Uranium found itself in no-man’s land as we saw prices spiral out of control, and it seemed that nobody wanted any part of the stuff. Because of the low price, many mining projects were put on hold, we experienced a supply glut, and demand was lower than ever.

resized uraniumNow, uranium is making a different kind of headline as it seems to be in the midst of a comeback.

This time it is with the end of the HEU Agreement between the U.S. and Russia, which has a commercial value of roughly $17 billion. The 20 year program has, until now, greatly benefited both world powers – utilities for the U.S. and significant income for a struggling Russia.

But last Thursday, Russia made its last shipment of uranium as it loaded its Atlantic Navigator ship in St. Petersburg and set off across the Atlantic to Baltimore.

We’ve known about the agreement coming to a close for some time, but what we didn’t know was how much it would affect the uranium market as it makes its comeback.

We know that the U.S. tried to extend the agreement with Russia. After all, this has been a significant non-proliferation agreement between two sides that generally find themselves on opposite sides of the fence. And they made it work.

But Russia seems hell bent on flashing its power – it is richer now than before – and wants to be treated as an equal to the U.S. Since President Vladimir Putin took power in 2000, he has made it a point not to accept handouts and to be viewed as a worthy adversary.

In an effort to expand Russia’s nuclear industry, the nation will secede from its nuclear arms deal with the U.S. and expand its territory by signing commercial deals with buyers from around the globe.

The U.S. will be left looking for commercial supplies, still roughly a quarter of which will come from Russia.

The commercial uranium market as a whole shouldn’t shift much, and electricity prices won’t see any major effects.

The Agreement

The Highly Enriched Uranium (HEU) Purchase Agreement was set up in 1993 and has helped power American homes for the past 20 years while maintaining its true objective: reduce the risk of Russian nuclear materials falling into the wrong hands.

Under the agreement, Russia would down-blend 500 metric tons of highly enriched uranium (HEU) from its nuclear weapons into low-enriched uranium, which would be shipped for use in the U.S.

There, it would then be made into fuel for nuclear power plants. It has worked splendidly, going off without a hitch for 20 years, and it has been used to generate about half of all the commercial nuclear energy produced in the U.S., or about 10 percent of all U.S. electricity, according to Reuters. That’s about one in 10 American light bulbs powered by nuclear material from Russian warheads.

And while Russia is always a bit disgruntled, the deal was a great boost to the Russian economy after the Soviet collapse in 1991.

It was after ’91 that there was a real fear that Russian scientists would begin selling nuclear secrets, and thus, the HEU Agreement was formed.

Of course, Russia would fiercely deny any wrongdoing, insisting that its nuclear materials were always secured, but that’s another story. Either way, it’s over now…

Both sides would agree that when it comes down to it, they can cooperate and work together.

And so the U.S. made proposals to extend the agreement, but Russia refused and instead has decided to move on.

A new deal has been reached between the United States Enrichment Corporation (USEC) and Russia’s Techsnabexport (TENEX) for Russian uranium to fill the void left by the HEU Agreement.

Uranium Price Comeback

No matter how we slice it, the price of uranium is set to go higher – and we’re going to probably see that happen over the next year or two.

The supply glut will be gone in that time; mining will be back on track. If you’re asking me, I say buy now.

Over the next decade, the demand for uranium will grow about 3 percent per year, most of which will be supplied by China, Russia, and India, according to China is on an absolute uranium rampage right now.

The U.S., which is currently the world’s largest nuclear power producer, will move a bit slower. It’s got a few reactors in development, but there are also a handful that have closed and more that face that same end.

Let’s not get discouraged by the fact that Germany plans to phase out nuclear power by 2022 and that France is also talking about reducing its heavy reliance on nuclear. The demand will still surge on from nations that need a clean power source.

The growth will come. Even Japan will be restarting its reactors.

There are a number of uranium miners and nuclear companies that will be set to profit when this comes to fruition. Do your due diligence, and buy while prices are down.

Undoubtedly, uranium is headed in the right direction, especially in the medium to long-term.


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