Uranium vs. Gold

Uranium vs. Gold

By the Casey Energy Team

Think gold is the hottest yellow metal? Think again.

Uranium is taking off, its price jumping up US$3.50 per lb. this week to US$66. It is the biggest price jump in a long time, and it shows that even though uranium has been heating up for six months already, the pot has yet to boil over.

The other yellow metal, as it is known, spent 2008 falling from a ridiculous and unsustainable high of $136 to the low $40s, then spent 2009 doing nothing much at all. In mid-2010, though, the beast started to awaken. China began searching out long-term contracts with suppliers in order to feed its 13 operating nuclear power plants and guarantee fuel for the 25 reactors under construction and the many more planned. Official targets for nuclear capacity in the country are 80 gigawatts electric (GWe) by 2020, 200 GWe by 2030, and 400 GWe by 2050. China’s current nuclear power capacity is just 9.1 GWe.

To reach its 2030 target of 200 GWe, China will need some 95 million pounds of uranium annually. In 2009, the world as a whole produced just shy of 112 million pounds – production clearly needs to increase if it is going to meet demand. And the looming end of the Megatons-to-Megawatts program will only sharpen that divide. The Russian program converted 400 tonnes of high-grade uranium from old Soviet warheads into low-enriched uranium suitable for American nuclear power plants over the last 15 years. This created enough fuel to produce roughly 20% of the United States’ energy needs, but it is scheduled to end in 2013.

The growing pressure on uranium production from swelling demand is no surprise, and it started to lift the price of uranium in 2010. In fact, contrary to popular belief, uranium actually outperformed gold last year. Hard to believe? Here’s a chart showing the indexed prices of gold and U3O8 over last year:

Gold started 2010 at US$1,121.50 per oz. It had a great run, to be sure, and ended the year at US$1,405.50. That’s a gain of 25%.

Uranium started last year at US$45 per pound. For the first half of the year, the price remained stagnant, but in the second half it started on a steady climb and by the end of December had reached US$61. That is a gain of 35.5%.

As for where uranium is headed this year, we certainly don’t expect another crazy run-up, like in 2007, but rather predict gradual gains to the $70 level. So there is still opportunity to climb on this horse; check out Casey’s Energy Opportunities to find out about our current uranium company picks.

Our recent track record in the uranium sector has been far from shabby. In the second half of 2010, we recommended two uranium stocks, one large-cap and one small-cap, and both generated healthy returns.

The large-cap was Denison Mines, a company we have bought and sold for more than a decade. In late 2009, we recommended buying Denison at 90¢. Then in July we recommended it again, at $1.30 or less. Three months after that, the stock hit $2.24 and we took our initial investment off the table, or as we like to call it, a Casey Free Ride. Denison is now at $3.30, providing a 13-month gain of 267% or a three-month boost of 156%. Not bad!

On the other end of the size scale is JNR Resources, an Athabasca Basin explorer with a host of projects and an experienced management team. The Denison recommendations went out in both Casey’s Energy Report, our monthly newsletter aimed at investors with mid-level investment knowledge and tolerance for risk, and Casey’s Energy Confidential, an alert service directed towards more sophisticated investors with a higher risk threshold.

For JNR, in August we alerted our Confidential subscribers to a 17¢ private placement. By the end of December, the company was trading at 45¢ and we took our initial investment off the table, leaving our 165% gain on the books as a Casey Free Ride, to continue to grow with the company and the price of uranium.