How would you like to own a company that is GUARANTEED to sell everything it can produce?
You could charge any price for your product and it wouldn't matter. The world is so desperate for what your selling it will pay ANYTHING to get its hands on it.
For most companies, the idea is merely a fairy tale... If Coca Cola (NYSE: KO) tried to sell you a 20 oz for $10.00, then you'd probably laugh as you went to grab a regular priced Pepsi.
But Coca-Cola doesn't sell uranium... and a nuclear power plant operator can't just switch to an alternative fuel source as easily as we can find a different beverage -- making demand for the metallic stuff HIGHLY inelastic.
That's one of the reasons I think it could be time to invest in uranium. Let me explain...
Like many global crises, the story starts here in the United States.
Most people have never heard of the "Megatons to Megawatts" program. Put simply, the agreement ships uranium harvested from dismantled Russian nuclear weapons to use as fuel in nuclear reactors in the United States. In 2013, this 20-year nuclear warhead agreement between the United States and Russia will expire.
Here's the kicker: This program accounts for half the U.S.' nuclear fuel and 10% of our total electricity. The amount of electricity produced thanks to this program is more than solar, wind and hydroelectric combined. But when it expires in 2013, there's going to be a massive shortfall of uranium in the United States.
In fact, our power plants need about 40-60 million pounds of uranium annually to operate, but domestic mines spit out just 4 million (about 6-10% of what we need).
Then there's the rest of the world....
It might come as a surprise after all the negative headlines... but nuclear power is still a growth industry, despite the Fukushima disaster in Japan.
Only 10 of the world's 445 reactors have stopped operating since the accident. Meanwhile 60 new ones are under construction... and 370 more are in the planning stage.
The hundreds of new reactors being planned are driving a frantic scramble for uranium inventories. You need 1.5 million pounds of uranium at startup to get a reactor going. And you need 500,000 more pounds to burn every year. Utilities like to hold three to four years of inventories. This adds up to big numbers when you consider that the world digs up only 140 million pounds a year.
If we look out over the next 8-10 years, which is how long it takes a nuclear power plant to become operational, the market is about 400 million pounds short of demand.
In other words, the uranium we're now digging out of the earth covers just 65% of what these reactors will need. The new supply will have to come from somewhere, or the price of the existing supply will skyrocket.
OK, so we'll just find more of the stuff, right? Wrong.
Greg Hall, director of one of Australia's top uranium explorers, recently told the World Nuclear Association to expect no more than five significant new finds in the next decade.
Nuclear power generators know they're soon going to be standing in a much longer line for Uranium. Consequently, uranium-poor countries are scrambling to lock up as much uranium as they can.
Indian power generators are hoarding huge quantities... and buying stakes in African mines.
China is buying out foreign uranium miners lock, stock and barrel. Reuters recently reported that China Guangdong Nuclear Power is trying to take over London-based Kalahari Minerals. Kalahari is the biggest shareholder in one of the world's largest uranium projects. This will give the Chinese company access to a world-class uranium project.
China mines just 2 million pounds of uranium a year -- even less than we do. So it has no choice but to buy it where it can.
China says it will boost uranium imports fourfold to 50-60 million pounds a year by 2020. At that point, China will be gobbling up 25% to 30% of total global production. There's no way to do this without sparking a price war.
We could see uranium prices soar to $100, $200, even $1,000 a pound. That's a long way up from today's $55.
Think that kind of a price advance is fanciful? Think again. Uranium spot prices were just $10.75 per pound in early 2003. By the middle of 2006, they had spiked to $45 per pound. And six months later, prices were climbing towards triple-digit territory -- a near 10-fold increase.
These guys will pay whatever it takes. They don't care how much it costs -- they just want to be sure they have it.
After all, it costs about $2 billion to build a new nuclear power plant. So paying $100 a pound for uranium to keep your plant running is a drop in the bucket. In fact, even if the price of uranium skyrockets to $1,000 a pound, nuclear energy would still be cost-effective.
Action to Take --> So make sure to keep an eye on what's going on in the uranium patch. As the "Megatons to Megawatts" program draws to a close, and global stockpiles continue to shrink, the metal's price could skyrocket. By the looks of it the world needs more uranium, and there simply isn't enough to go around...
[Note: Once the "Megatons to Megawatts" program winds down, 10% of America's electric energy supply will suddenly dry up. Once that supply is disrupted, the price of uranium mining stocks could go through the roof... I'm talking about gains in the hundreds of percent. For more information on how you can profit from this coming supply crunch, I invite you to watch this presentation.]