Uranium: How high could the price go…$576?
Sunday, February 11, 2007 at 6:38AM
Uranium Stocks in Uranium
As uranium prices continue to rocket upwards vast profits are being made in uranium stocks. However it is impossible to ignore the question: How high could the uranium price go?

This article is meant to be provocative and stimulating with the aim being to encourage more discussion resulting in the picture for uranium becoming clearer for investment purposes.

Oil is generally considered the staple fuel of the world, along with the other fossil fuels. It recently made an all time high, but when you take inflation into account oil was at its most expensive in 1980 when it reached levels of around $37.75 a barrel which is $92.26 in today's US dollars. As oil prices rise, the cost of energy from oil-powered plants rises considerably.

oil11feb07

For example if the price of oil doubles, from $60 to $120 then the cost of power from oil powered stations increases by 40%. As the cost of oil to a power station is about 40% of the total cost of the final power, so doubling the cost of oil puts a 40% premium of the price of power. However if the price of uranium were to double it would not have nearly as much of an effect on the final cost of power from a nuclear plant. If the price of uranium were to double, the power from a nuclear power station would only increase by 5%. As the cost of uranium to a power plant is only 5% of the total price of the power produced.

What does this tell us? Well it certainly shows us that the cost of uranium to a power station is pretty insignificant, relative to the final price of power. It also shows us that even at these uranium prices of $75/lb utility companies can easily afford to pay more for uranium, much, much more before the cost of uranium becomes as expensive as oil. In other words, at the moment uranium is relatively cheap, even though it has gone from under $7 to over $75/lb.

So how far can uranium prices go before it can be equal with the price of oil? As oil represents 40% of the cost of power produced by it, and uranium accounts for 5% of the price of its power then uranium prices could increase eight times, as 40 / 5 = 8. So if the cost of uranium goes up to the cost of oil, relative to the price of power produced than it can go up to eight times more than the current spot price.

The uranium price used in these estimations was $72/lb and so that means that we could see uranium prices rising by a multiple of eight from here before it becomes as “expensive” as oil. I know that you all are thinking, what is 8 x $72 and the answer is $576! Uranium prices could go up as high as $576/lb in this bull market before the yellow cake becomes as “expensive” as oil.

One must not forget that this may not even be the limit. These calculations are presuming that uranium prices rise to the current price of oil. There are many that believe, including yours truly, that oil prices are set to go far higher and so uranium prices could also go even higher than the previously calculated figure. The main point of this hypothesis is that uranium is a tiny cost in the running of a nuclear power plant and therefore the operating companies can afford to pay a lot more than current prices, without even breaking a sweat.

But it gets better...

Closing down a nuclear power plant prematurely and decommissioning it is extremely expensive often running into hundreds of millions of dollars. The way that nuclear power stations usually work is that they make payments into a trust fund every year that they operate. The planning behind this is that at the end of the power station's “life” for example thirty years, the company will have enough money in the trust fund to be able to shut down the power plant. Therefore they will not want to shut down the plant simply because of slightly higher uranium prices and face a nine-figure bill to shut down the plant. Also they may not be actually able to close the plant, as the cost is so huge, and they have made commitments to the utilities, so they will be forced to purchase uranium at higher prices to stay in operation.

In conclusion, $576/lb is a surprisingly realistic target for the uranium price if it is going to the same price as oil, relative to the price of power produced and it will be very difficult for the nuclear power stations to simply stop buying uranium. However the main question on most of our minds is how can we profit from this uranium boom? One cannot simply buy uranium at our local shop and so we think the best way to benefit financially from this bull market is to invest in uranium stocks. We would advise people to think carefully before investing, do not simply buy a stock that has uranium in its name and a patch of land. Consider small to mid-cap companies that have proven reserves and that are producing uranium, this is the best way to guarantee that you profit from rising uranium prices.

Such stocks are documented on www.uranium-stocks.net. The newsletter and portfolio are completely free of charge so you have nothing to lose and everything to gain...


10 February 2007


Article originally appeared on Uranium Stocks (http://www.uranium-stocks.net/).
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