The Uranium Bull Is Coming

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The Russian-American megatons to megawatts program just ended, taking with it around 10% of America's uranium supply. Increasing geopolitical stress means that there is little chance of the program being restarted. Economic growth in East Asia has created a nuclear renaissance, and Russia needs its nukes to maintain its power vis-a-vis China. Low uranium prices have led to constrictions in the world's mined uranium supply. Rosatom is one of the world's top three producers and it has decided to stop a number of expansion projects. 

Now is the time to buy Uranium. The supply is falling and it is estimated that the total number of nuclear reactors will increase by 91 by 2022. These supply constraints will help push up prices, bringing more profits to uranium miners.

Stay away from the big mining holding companies
Investing in the big mining holding companies like BHP Billiton (NYSE: BHP  ) and Rio Tinto (NYSE: RIO  ) makes sense for a number of metals, but uranium is another story. It is just too small of a portion of production to provide any noticeable impact to their bottom lines. 

In the recent quarter BHP Billiton produced 930 tonnes of uranium concentrate, worth $71.8 million using current spot prices of $35 per pound. Seeing as the company had revenue of $66 billion in fiscal year 2013, its uranium production could double and it would still be little more than a rounding error. BHP Billiton recently decided not to go ahead with a big expansion of its Olympic Dam uranium mine and it sold off the Yeelirrie project to Cameco (NYSE: CCJ  ) for $430 million.

Rio Tinto has a similar story to BHP Billiton. In Q3 2013 Rio produced 1.8 million pounds of uranium worth about $63.6 million at current prices. With 2012 total revenue of $50.1 billion, uranium is nothing compared to Rio Tinto's overall operations. The company is focused on measures to increase efficiency like its new $518 million automated trains, and uranium projects are simply not a priority.

Stick with uranium miners
Cameco is a different story. It is a not an iron ore-copper-coal conglomerate, but a dedicated uranium miner with global operations. Thanks to high-yield mines and long-term agreements it is able to make money even in the current environment of depressed prices. 

At first glance Cameco looks expensive with its price-to-earnings ratio around 26, but this number hides the real picture. In Q4 2012 its earnings took a hit from $168.87 million in special charges. Thanks to strong future production, analysts project earnings per share of $1.09 in 2013, resulting in a forward P/E ratio around 17.4. Its profit margin of 12.1% is respectable considering the current market, but this should increase in the coming years as supply constrictions start to boost prices.

Denison Mines (NYSEMKT: DNN  ) is another dedicated uranium miner with property right next to Cameco's McArthur River mine. Denison is a risky company as it needs substantial cash injections to continue its exploration programs. The company has promising high-value projects in Canada, but analysts expect it to post losses in 2013 and 2014 of $0.05 per share. Considering that as of September 2013 it only had $4.2 million in cash and $23.7 million in cash equivalents, it is best to tread lightly.  

Cameco offers profits and exploration programs in growing Asian markets like Kazakhstan. If the price of uranium suddenly explodes Denison's and Cameco's share prices will head upward, but in the short term it is very difficult to predict commodity prices. To protect your capital it is best to stick with a relatively safe and profitable miner like Cameco.

The bottom line
Russia has stopped shipping its nukes over to America to be recycled into nuclear fuel. At the same time low uranium prices are making miners cut back. Cameco is in a great position to grow in the coming decade as it continues to produce uranium at a profit and develop new projects. While BHP Billiton and Rio Tinto are fretting over iron ore margins, now is the time to investigate the uranium sector.

Putting your money where your mouth is
This incredible tech stock is growing twice as fast as Google and Facebook, and more than three times as fast as and Apple. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!


Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2013, at 7:36 PM, sciencedave wrote:

    Uranium is highly unlikely to be a major power source in ten years. Nuclear power is not as cheap or safe as many believe due to intangible hidden costs and black swan nature events. Germany has shown us the future by the decommissioning of nuclear plants. Investing for long- term? Short term economies do not equate to long term profits.

    A good question to ask yourself is "would you put this industry in your backyard." If the answer is no.....

  • Report this Comment On May 23, 2014, at 8:28 PM, hgraphic wrote:

    China will put it in their backyard and not think twice.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2732654, ~/Articles/ArticleHandler.aspx, 9/26/2016 10:23:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,094.83 -166.62 -0.91%
S&P 500 2,146.10 -18.59 -0.86%
NASD 5,257.49 -48.26 -0.91%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 4:02 PM
BHP $32.63 Up +0.09 +0.28%
BHP Billiton CAPS Rating: ***
CCJ $8.71 Down -0.13 -1.47%
Cameco CAPS Rating: ****
DNN $0.47 Down -0.01 -2.38%
Denison Mines CAPS Rating: ****
RIO $32.17 Down -0.24 -0.74%
Rio Tinto CAPS Rating: ***