Glowing With Potential
Comment of the Day

November 19 2010

Commentary by David Fuller

Glowing With Potential

My thanks to a subscriber for this article which appeared in Barron's. Here is a sample:
"This is a commodity that, when it starts to move, it can get crazy," says Robert Mitchell, general partner of Portal Capital in Oregon, noting that spot prices never ticked down in the three years through 2007. He's the portfolio manager of Green Energy Metals, a hedge fund with 70% of its portfolio in physical metals-its largest stake is in uranium-and the rest in related equities, and Odysseus, a metals-stock fund. The two are up 16% and 20.5%, respectively, this year.

A mere eight mines account for more than 50% of global output, much of it in places like Kazakhstan, rife with political risk. Mitchell, who called the 2007 top in the market, closing a fund when the metal was around $133, says the current price isn't high enough to encourage new mine construction. It would have to reach the 60s or 70s for that to happen.

Utilities buy uranium largely through long-term contracts, cuurently paying about $10 a pound above the spot price. At about 20% of the overall market, the spot market is particularly volatile. In addition to U.S. dollar weakness, the recent runup has been helped by producers like Rio Tinto (RIO) and Cameco (CCJ), which have been buying in the spot market to meet commitments, and Kazakhstan, which says it won't hit its 2010 production target.

David Fuller's view While each article and report provides a little more insight, uranium is now a familiar story for veteran subscribers, who will also remember the 2006-2007 run.

I maintain that was only the prelude. Fundamentally, very little was happening back then. This time, demand from China and other countries with rectors due to come online in the next few years is prompting them to stockpile.

Uranium is particularly attractive for speculator-investors because it is the catch-up play in metals and energy. It is also a thin market and sooner or later, every country will want at least one nuclear reactor.

Back to top