The forecast showed an extra 20 million pounds of uranium production for 2018 … with no buyers. As you can imagine, the uranium price plummeted.
It hit its lowest price in October 2016 at $18.75 per pound. That touched a 13-year low price.
The downtrend began back in 2011. The uranium price peaked at $72.50 per pound in January 2011. It fell steadily since then, down a total of 74%.
This is a shocking result for an energy source that many embraced as a “green” rescue from hydrocarbons just a few years ago. Nuclear power creates safe, carbon-free energy.
The problem is, it can cause huge disasters. That’s what we discovered when the Fukushima disaster struck Japan.
The Demise of Nuclear Power
An earthquake and tsunami damaged the Fukushima Daiichi nuclear power plant in March 2011. The earthquake damaged a reactor. Then the tsunami inundated the area, destroying vital backup generators.
Without the backup power, cooling water couldn’t get into the plant. That caused a runaway reaction, a meltdown — the greatest fear for all nuclear power plant operators.
A series of human errors compounded the damage. The operator, Tokyo Electric Power Company, was completely unprepared for the situation.
The result killed the nuclear power industry.
Fukushima turned the world against nuclear power. Germany shut down all its reactors in response. Demand for uranium fell, and the uranium price collapsed.
This finally led major uranium producer Cameco Corp. (NYSE: CCJ) to cut production in early November 2017. The company’s earnings fell and fell. It struggled to maintain profitability. It finally announced that it would suspend operations at its flagship McArthur River mine for 10 months.
Cameco’s decision cut the surplus to just 5 million pounds … and then the unthinkable happened: The world’s largest uranium producer followed suit. Kazakhstan’s state-owned uranium miner Kazatomprom cut production by 20% for the next three years.
The result could be a massive bull market in uranium.
The Uranium Price and a Windfall for Uranium Producers
Shares of Uranium Participation Corp. (Toronto: U), which hold physical uranium for investment, soared in response. As you can see from the chart below, shares are up 30% in just a month and a half.
Shares of uranium companies surged too. However, this is just the beginning. Analysts that cover the uranium sector believe these cuts could add $30 per pound to the price of uranium. That’s more than double the current spot price.
For uranium producers, this will be a windfall. Companies like Cameco and Ur-Energy Inc. (Toronto: URE) will see revenue and earnings rocket higher.
This appears to be great news for the uranium sector. It’s a story we’ll continue to watch in 2018.
Good investing,
Matt Badiali
Editor, Real Wealth Strategist
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dickie December 30, 2017
If nuclear power does exist and is not just inefficient steam power, as some believe, used as an excuse for taking in billions and billions during the cold war than uranium would have a market outside dirty bombs and such. Perhaps there’s other reasons for its demise.
Robert Schubring December 30, 2017
The writer is mistaken on several counts.
To begin with, Fukushima did not have a “runaway reaction”. A runaway reaction means that control rods, designed to fall by gravity into the reactor to shut off the reaction, somehow didn’t fall. (That happened at Chernobyl, because the design of Chernobyl placed pipes carrying high-pressure steam underneath the control rods. When the steam pipe broke, the steam pushed the control rods out of the reactor core and they couldn’t be re-inserted. Fukushima, like most other nuclear power plants, enclosed the entire reactor in a pressure vessel, so there’s no way a steam leak can shove the control rods out of the reactor core). What happened at Fukushima is that the reactor shut down automatically but cooling water to remove the remaining heat from the reactor core, stopped flowing. Diesel engines burning petroleum were provided for that purpose, of pumping water through the reactor to cool it after shutdown. The trouble was that designers underestimated how much flood water would inundate the site in a major tsunami disaster. Diesel oil floats on water…if water gets into the engine and floods it so it won’t start, backup diesel power becomes unavailable.
None of Japan’s other reactors malfunctioned. They all were forced to shut down. They all burned diesel oil to pump cooling water through their cores to remove residual heat. They all cooled normally to a cold shutdown.
Understanding that better plant design had made the other plants safer than Fukushima, was what persuaded Japan to stop burning oil for electricity and re-start their nuclear plants.
As for the possibility of uranium prices rising again, what’s driving that is China’s “One Belt, One Road” economic strategy. China opens 4 nuclear power plants in 2018. They plan to complete one additional nuclear plant each year afterward, for 50 years. That’s in addition to China’s dominance in solar power, which is only available during daylight hours.