U3O8 Rush

The Largest producers of uranium are Canada, Australia and Kazakhstan. Like rare earths, the US used to be the greatest producer of uranium on earth, but since our laboring days of the 20th century, the US currently produces less than 5% of the world's supply (while consuming 20%). The world is powering itself by supplementing a production shortfall with old military stockpiles as mining is not cost effective in most areas with the prices we saw after the crash of the peak price which was only slightly above the inflation adjusted 1980 high of roughly $120.



U3O8 (uranium oxide) is building a strong rounded bottom, which in technical analysis is a strong sign of a reversal which has played out as expected. Target spot price of $120 per pound is within a 24 month timeframe. Some consolidation at these levels (currently $70/lb) would be indicative of a healthy rally.



Using the Ux LT U308 pricefrom UxC (LT for long term, which includes conditions for escalation (from current quarter), delivery timeframe (>= 24 months), and quantity flexibility (up to ±10%) considerations), it was clear the $40/pound level was somewhat artificially low considering the supply and demand dynamics. The estimate below displays the market consuming stockpiles instead of relying on increased production. New uranium production accounts for around 60% of the power facilities usage.



Of course when looking at mining projects, one has to consider the political implications and public opinion towards the possible development of natural resources. Who will let companies actively explore and mine new uranium deposits? Currently the world requires around 75,000 tonnes of uranium each year and only produces a little more than half of what we require. The cost curve for uranium shows production costs increasing dramatically after surpassing 60,000 tonnes per year. Future demand remains a topic of some contention but certainly China's projected growth alone will demand a new surge in U3O8 prices.



New reactors construction growth rate is over 20% per year recently. China has proposed hundreds of new reactors to meet some of their energy needs (here is a list of some of China's new reactors). The industry needs production from new mines. This means increased capital inflows for acquisitions, drilling and production. We are likely to see sovereign stockpiling occur at a greater rate as the market tightens (which does not bode well for the long term fundamentals).



Four companies companies I like in this sector (though Mawson and Stans are very ree focused)

Uex Corp - UEXCF
Mawson Resources Ltd - MWSNF
Stans Energy Corp - STZYF
Uranerz Energy - URZ