Casey Research's Chief Energy Investment Strategist, Marin Katusa, whose portfolio profited nicely the last time the uranium bull broke loose a decade ago, recently interviewed a group of world-renowned energy experts to discuss the prospects for the sector that some considered doomed by the Fukushima disaster. Anti-nuclear power sentiment has by no means evaporated, but Katusa sees clear signals that the bulls are ready to run, not least of which is the recent attack on the Somair uranium mine in Niger.
Why? First, the 20-year Highly Enriched Uranium (HEU) Program agreement between the U.S. and Russia, aka "Megatons to Megawatts," expires this year.
Second, the end of that program will allow Russia to sell its coveted uranium, which currently powers one of every 10 homes in the U.S., to the highest bidder. With 200 nuclear power plants under construction or on the drawing boards, China is likely to be first in line, with India and even oil-rich Saudi Arabia on its heels.
Third, the increase in nuclear plants being built around the world will stimulate huge demand while supply inevitably dwindles. Because it can take a decade to bring a uranium mine on-line, new mining production can't grow fast enough to meet the demand.
Fourth, like it or not, nuclear energy is clean—while the average coal-fired power plant in the U.S. emits nearly 4 million metric tons of CO2 each year, nuclear power plants emit no carbon dioxide, sulfur dioxide, nitrogen oxides, mercury or other toxic gases.
Finally, last Thursday, an Al-Qaeda splinter group attacked the Somair uranium mine in Niger—owned by French uranium giant Areva. This will further disrupt global uranium supplies and emphasizes what the energy experts have been saying: Uranium is prime for price increases.
Marin Katusa: We first met 10 years ago, when you were begging people to buy uranium companies, and the market boomed. Those of us who followed your advice made a lot of money. Are you expecting a replay in that market?
Rick Rule: I think so. The similarities are interesting. At that time, the price of uranium on the market was less than what it cost to produce it, which meant that one of two things would happen: Either the uranium price would go up, or the lights would go out. Those were the only two choices. We're in a situation now where the uranium price on world markets is lower than what's required to bring online the supplies needed to keep the lights on around the world. So once again, either the uranium price goes up, or the lights go out. I think the price will go up.
MK: What can you tell investors who are nervous about uranium? Nuclear power is unpopular. Why should investors expect its feedstock to have this massive bull market?
RR: You make money in financial markets by buying low and selling high, and you can't buy low when something is universally loved and every investor is competing with you. You have to buy things when they are unloved. In natural resources, you can be a contrarian or a victim. You had the good sense of getting into the market when uranium was cheap, and you also had the good sense to get out when everybody else was flocking in. You did what you were supposed to—buy it when it was out of favor and sell it when it came into favor. It's out of favor again. You will make money buying it now and selling again when it returns to favor, because it will.