Uranium now a hot commodity


everytemplate();
if (document.getElementById("titletemplate")) {
document.getElementById("titletemplate").innerHTML=titletemplate.toUpperCase();
}

Nov. 11, 2006, 10:17PMUranium now a hot commodityGrowing demand for nuclear power fuels a major rally
By GAVIN EVANS and CHRISTOPHER DONVILLEBloomberg News
TOOLS

Email

Get section feed

Print

Subscribe NOW -->
Uranium is the energy investment of choice for a growing number of hedge funds, which claim a sixfold gain since 2001 is just the beginning of a rally that will last years.
"We're in a historic uranium shortage," said James Passin, who manages $580 million at New York-based Firebird Management and began buying shares of uranium producers five years ago. "We're in a global nuclear revival."
Uranium, which recently hit a record $60 a pound, may rise to $70 by January after a flood at Cameco Corp.'s Cigar Lake mine in Canada, said Jean-Francois Tardif, who has $180 million in uranium at Sprott Asset Management. Bob Mitchell at Adit Capital Management says $80 to $100 a pound is possible.
Even with new mines, growth in the supply of uranium is straining to keep up with demand from utilities. Production from five of the six largest mines in Canada, Australia and Namibia fell in the first half from a year earlier, according to Nukem Corp., a Danbury, Conn.-based uranium trader.
Power producers are paying record prices for uranium to run plants that produce 16 percent of the world's electricity. Russia plans to make nuclear power the source of 25 percent of its needs by 2030, up from 16 percent now, creating a state-run company to compete with Paris-based Areva.
Demand for nuclear energy is bolstered by government efforts under the Kyoto Accord to limit emissions of carbon dioxide and curb imports of fossil fuels. Australia, home to 40 percent of the world's uranium deposits, says it may build a nuclear industry that can compete with oil and coal within 15 years.
'Producer's market'"It is a very tight producer's market," said Robert Godsell, chief executive officer of Johannesburg-based AngloGold Ashanti Ltd., whose gold mines also produce enough uranium to meet the needs of Electricite de France, the world's biggest nuclear-energy provider. "We're very optimistic about the long-term price of uranium because it's the only alternative to coal and oil-based energy on scale."
The spot price of uranium has advanced 45 percent on average in each of the past five years, based on data from Roswell, Ga.-based Ux Consulting Co., a pricing benchmark in the nuclear industry. That beats the average annual gain of 23 percent for copper and nickel on the London Metal Exchange.
The Reuters-Jeffries CRB Index of commodities is down 8 percent this year, while uranium is up 66 percent.
"There's nothing to stop the rally in uranium, unless nuclear has a big accident," said Thomas Neff, a physicist and uranium-industry analyst at the Massachusetts Institute of Technology in Cambridge. The industry's worst accident, the explosion and fire that killed almost 50 at Russia's Chernobyl plant, occurred in 1986.
"We had 20 years of low prices," Neff said. "The cost of that is there had been virtually no investment in new mining projects."
Passin's Firebird Global Fund has earned average annual returns of 46 percent over the past five years. Passin is the largest shareholder in Summit Resources Ltd. of Perth, in Western Australia, and has been a "long-time holder" of uranium explorer UEX Corp. of Vancouver.
By comparison, Warren Buffett's Berkshire Hathaway has returned 8.8 percent a year over the same period. Buffett's energy investments have been in oil, natural gas, coal and renewable power, not nuclear.
Buffett, the world's second-richest man, completed a $5.1 billion takeover of electricity producer PacifiCorp from Scottish Power in March, and at his annual shareholders meeting in May singled out utilities as an area of interest. New reactors may be needed to ease the threat of global warming, he told the Wall Street Journal in June 2005.
'Going higher'Tudor Investment Corp., the $14.7 billion fund founded by Paul Tudor Jones, in the second quarter bought a stake in Cameco, the world's biggest uranium supplier, worth $29 million, according to data compiled by Bloomberg. Citadel Investment Group, a $12 billion hedge fund, in that period had a stake worth $11 million, the data show.
Spokesman Bryan Locke of Chicago-based Citadel, and Gwenn Daniels, who speaks for Greenwich, Conn.-based Tudor, declined to comment.
"Prices are going higher," said Mitchell, of Adit Capital, whose fund holds uranium and shares in miners, fuel-makers and reactor builders.
'Put on fast-forward'The flood at Cigar Lake, which Cameco said will delay production until at least early 2009 from what may become the world's second-largest mine, "has accelerated what was already happening," said Mitchell. "The movie that was already playing has been put on fast-forward."
Portland, Ore.-based Adit began buying uranium in December 2004. Mitchell would not disclose the size of the investment, which accounts for 70 percent of the Adit I fund.
Investors by law can't take physical delivery of uranium, which is tightly regulated by governments. North Korea's test of a nuclear bomb last month and the United Nations' investigation of Iran's nuclear program heightened security concerns.
Adit's holding is stored on the fund's behalf in a licensed "secure facility," Mitchell said.
Cameco estimates that speculators hold about 18 million pounds of uranium, the equivalent of more than half the 30 million pounds traded each year on the spot market.
"With recent events and the outlook for prices, they continue to be interested in accumulating," said George Assie, Cameco's vice president of marketing and business development. "They are a buyer, not a seller."
Uranium sharesDemand is also rising for shares in Toronto-based Uranium Participation Corp., a publicly traded investment fund managed by uranium miner Denison Mines Ltd., and for U.K.-based Nufcor Uranium Ltd., a fund started by Nufcor International Ltd., the world's biggest uranium trader.
Shares in the funds trade at a premium to their uranium holdings, implying a price of as much as $80 a pound, said Mitchell, who manages $150 million. Russia, the fourth-largest uranium producer, is considering selling shares in state companies that mine the metal.
Rising oil and gas prices have bolstered the case for nuclear energy. Natural gas in New York costs about $7.50 for each million British thermal unit, more than three times the average of $2 during the 1990s. Crude oil prices have doubled in three years, hitting a record $78.40 a barrel in July.
A recent 7 percent increase in uranium was the biggest gain in more than 20 years, according to Ux Consulting.
"Cigar Lake was in big bold type on everybody's spreadsheets as producing 18 million pounds a year two years from now," said Sprott's Tardif, whose holdings include Energy Resources of Australia Ltd. and Paladin Resources Ltd. "Now they're going to have to go elsewhere" for supply.
Not everyone is on board.
Don't chase the uranium rally, said Jim Rogers, the author of Hot Commodities. "It's not a surprise that prices are at all-time highs given that nobody has been opening new mines," he said. "However, I don't want to be investing in things that are touching all-time highs."