KEY POINTS:
Uranium is the energy investment of choice for a growing number of hedge funds, who say 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, of New York-based Firebird Management.
"We're in
a global nuclear revival."
Uranium, up 7 per cent last week to a record US$60 a pound, may rise to US$70 by January after a flood at Cameco Corp's Cigar Lake mine, says Jean-Francois Tardif of Sprott Asset Management. Bob Mitchell at Adit Capital Management LP says US$80 to US$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, Connecticut-based uranium trader.
Power producers are paying record prices for uranium to run plants that produce 16 per cent of the world's electricity. Russia plans to make nuclear power the source of 25 per cent of its needs by 2030, from 16 per cent now, creating a state-run company to compete with Paris-based Areva SA.
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 per cent of the world's known uranium deposits, says it may build a nuclear industry that can compete with oil and coal within 15 years.
"It is a very tight, producer's market," said Robert Godsell, 54, chief executive officer of Johannesburg-based AngloGold Ashanti Ltd, whose gold mines also produce enough uranium to meet the needs of Electricite de France SA, 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 per cent on average in each of the past five years, based on data from Roswell, Georgia-based Ux Consulting, a pricing benchmark in the nuclear industry. That beats the average annual gain of 23 per cent for copper and nickel on the London Metal Exchange.
The Reuters-Jeffries CRB Index of commodities is down 8 per cent this year, while uranium is up 66 per cent.
"There's nothing to stop the rally in uranium, unless nuclear has a big accident," said Thomas Neff, 63, 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, happened in 1986.
"We had 20 years of low prices," said Neff. "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 per cent over the past five years. Passin is the largest shareholder in Summit Resources of Perth, 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 per cent a year over the same period. Buffett's energy investments have been in oil, natural gas, coal and renewable power, not nuclear.
Buffett completed a US$5.1 billion takeover of electricity producer PacifiCorp from Scottish Power in March, and at his annual 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 last year.
- BLOOMBERG
