Thursday, May 22, 2008 at 06:31PM
After taking a severe beating the uranium sector is showing signs of a recovery. Scanning the radar there appears to be a number of differing opinions tabled in support of nuclear power, one of which is the high cost of oil.
There is a school of thought that argues that the price of oil is set go even higher, to $150/barrel and beyond as demand for energy continues to climb. Another argument is that the United States is about to enter its summer driving season putting more pressure on the supply side. Throw in the ‘Chindia’ factor where China and India plus the other emerging economies are expanding at a rapid pace and the projections become believable. On the supply side there are no new world-class discoveries to meet this projected demand. So the word is pile into oil producers and load up with oil futures etc.
Now, if the oil price is going to the moon then the search must be on to find an alternative, please don’t mention ethanol, the idea of burning food just does not do it for us. However, yellowcake does do it for us, as we are firm believers in the nuclear future. As we know, nothing goes up in a straight line, as evidenced with gold recently, when it pushed up through $1000/oz only to experience a pull back to the $850/oz level. The same could happen to oil, and there are analysts calling for oil to drop from its current historic high and return the $80/barrel level. Lets assume that they are correct. If oil does experience a pull back to lower levels will the interest in uranium wane? Do we don our hard hats once again and retreat to the bunker? In our humble opinion oil would have to drop back an awful long way before it could displace nuclear energy and just where is this oil and what about the environmental problems caused by burning oil?
Oil is influential but only in terms of a sideshow; the future of uranium is firmly founded on the fundamentals that support it and not the daily oscillations of an almost spent fuel. Although we agree that the fact that oil is running out is a major factor.
To recap, the world still has 433 nuclear plants up and running, 30 odd being constructed, and almost 300 in the pipeline. No doubt that China will become the front-runner and build nuclear plants at record-breaking speed just as China demonstrated by building the worlds largest airport in record time. As these construction programmes begin to roll it will become clear just how much important uranium is.
The question now is have we got the patience to wait for these things to happen and the investment community to recognise the importance of uranium and then follow through with their hard earned cash? We think so, and that is why we have not sold any of our uranium stocks during this torrid time for the uranium sector.
Going forward it will be volatile so hold on tight to what have purchased as to sell now will be to give someone else a real bargain, probably us!
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