Get ready for the next ‘rip your face off’ rally in this commodity
From Justin Spittler, Editor, Casey Daily Dispatch:
Paladin Energy is collapsing under its own weight.
Paladin is a uranium miner based in Australia. The company shared bad news two weeks ago, admitting it couldn’t pay back the $277 million it borrowed from French electric utility company Électricité de France. It was the final nail in the coffin.
To some, this might not seem like a big deal. After all, mining companies fail all the time.
But Paladin isn’t just any uranium miner. It was the stock to own during the last uranium bull market.
Its share price surged from AU$0.01 to AU$10. If you bought the stock at its lows, you could have turned AU$1,000 into AU$1 million in just five years.
Paladin soared so high, it became one of Australia’s biggest companies…
Then, the uranium market imploded in 2007.
Prices plummeted because the uranium industry expanded too much, too quickly. Miners flooded the market with uranium. This caused uranium prices to fall from over $135 a pound to as low as $18.
This staggering decline in uranium prices has killed Paladin. But make no mistake. It’s not the first miner to perish during this brutal uranium bear market.
In fact, more than 400 uranium miners have failed over the past decade. There are now just 40 or so uranium producers left in the world.
In short, the uranium market is a complete bloodbath…
And that’s exactly why I’m writing about it today.
You see, here at Casey Research, we’re not like most investors. We love a good crisis.
That’s because crises often hand you opportunities to buy world-class companies for bargain-bin prices. Sometimes, they even allow you to buy a dollar’s worth of assets for pennies.
Of course, the trick is knowing when a crisis will end. So today, I’m going to explain why the worst is over for the uranium market…
As you’ll see, there are classic signs of a bottom everywhere. I’m not just talking about Paladin’s epic downfall either. The fundamentals of the uranium market are also improving in a big way.
It’s now only a matter of time before uranium stocks make their next big jump…
You need to be ready before that happens. After all, uranium stocks are like coiled springs right now. The slightest bit of good news could cause them to pop.
At the end of today’s issue, I’ll show you how to position yourself for this coming “rip your face off” rally. But you should first understand why it’s time to speculate on uranium stocks.
The price of uranium can’t go much lower…
It’s already nearly 90% below its high.
More importantly, it’s below the industry cost of production. This means that the average uranium miner is losing money on every pound of uranium it produces.
Situations like this don’t last long.
But don’t take my word for it. Take it from Tim Gitzel, CEO of uranium giant Cameco. He says today’s uranium prices are “neither rational nor sustainable.” If they don’t rise soon, Gitzel says the supply of uranium will become much tighter… and that could send uranium prices soaring.
That supply crunch could happen sooner than most people think.
The world’s biggest uranium producers are already slashing production…
Take Kazakhstan, which produces 40% of the world’s uranium.
Earlier this year, its giant state-owned uranium miner Kazatomprom announced plans to cut uranium output by 10% in 2017.
U.S. uranium producers are also scaling back output. Just look at the chart below.
It measures the number of new uranium mines in the U.S. You can see that U.S. companies have severely cut back on exploration.
If this continues, global uranium supply is going to get very tight. But that’s not all that will lift uranium prices…
Demand for uranium is rising…
Right now, over 60 nuclear reactors are under construction around the world. Most of those will be up and running within the next three years.
Another 160 reactors are in the planning stage, and over 300 additional reactors have been proposed.
These new reactors are going to burn a lot of uranium. In fact, research firm Morningstar expects global uranium demand to rise 40% by 2025. That’s a huge surge in demand for a commodity, especially one that’s seen essentially zero demand growth over the last 10 years.
The combination of falling supply and rising demand is why analysts expect the price of uranium to rise. Some experts even think it could top $40 a pound by 2020. That’s double the current price.
The market is starting to “price in” higher uranium…
Just look at the chart below. It shows the performance of the Global X Uranium ETF (URA). This fund tracks 22 uranium stocks.
You can see that URA bottomed last November. Over the next few months, it nearly doubled in value.
Then, uranium stocks crashed. URA fell 35% between February and June.
This sharp pullback shook out a lot of weak hands… but not us.
We stayed bullish on uranium stocks for a couple reasons:
- Uranium prices are irrationally cheap, and…
- The sector is long overdue for a rebound.
So, if you haven’t already, consider buying uranium stocks today. They look like they’re setting up for the next leg in what could be a bull market for the ages.
Just understand that uranium stocks are highly speculative. So only bet with money you can afford to lose.
P.S. Casey Research has been all over the uranium boom this past year.
E.B. Tucker, editor of The Casey Report, just recommended a company he says will benefit most from the coming uranium boom. It’s a profitable, world-class company… And it even pays a dividend. Best of all, E.B. still thinks it’s a screaming buy.