India is keen to shore up its uranium stockpile. Even as several state-owned firms identify mineral assets and are in the midst of floating separate ventures in foreign countries to buy out uranium reserves to feed the country's voracious appetite for power and to maintain energy security, the Asian major's civil nuclear plants are set to benefit from imports from friendly countries.

Russia, which holds about a tenth of the world's uranium reserves, is aiming to be a major supplier to the Indian nuclear power industry. The two countries have decided to work on the creation of a joint venture for geological exploration and production of uranium.

Currently, India produces only about 450 metric tonnes of uranium. Given the recent announcements of construction of new nuclear power plants, which is second only to China, India is keen to source regular supplies at low prices. The country's annual uranium requirement is expected to jump by an additional 1,500-2,000 tonnes. Analysts have said that India's nuclear market is set to grow to around $40 billion by 2020. But firm prices could play spoil the party.

A newswire agency report had indicated that worldwide demand for uranium was eroding stockpiles and would result in prices rising to $55 a pound next year. Adam Schatzker, a metals analyst at RBC in Toronto, and Max Layton, at Macquarie Bank Ltd in London, had also forecast that uranium prices were set to climb to $56.25 next year, and $60 in five years.

Though nowhere close to the record $136 a pound registered in July 2007, India is keen to ensure that it has assured supplies of uranium to provide fuel for nuclear reactors, that will generate energy to drive its ensuing economic boom.

The country has 14 nuclear power plants that are used for peaceful purposes. But these contribute only 4% a year to the country's electricity needs. Plans are afoot for a massive increase in atomic power generation aimed at reducing the country's reliance on polluting fossil fuels.

Seeking to buy uranium, government officials in India recently had several meetings with their business counterparts in Canada and Australia. The previous Liberal government in Australia had received international standard safeguard agreements from India and thus had cleared the way for uranium sales. However, this year, major uranium exporter Australia, has refused to sell uranium to India unless it signs the Nuclear Non-Proliferation Treaty. Despite the setback, several other countries are eager to breast the tape.

David Fuller's view Uranium has been the world's worst performing major metal since its peak just over three years ago. Supply from the bubble peak has weighed on the market and uranium miners have been serial underperformers this year.

This may be changing because secure energy supplies are likely to be the world's biggest challenge in the foreseeable future. Yes, even more important than sovereign debt problems and disinflationary / deflationary pressures in OECD countries.

The BP oil spill disaster can only raise the floor beneath crude oil prices. There are abundant supplies of comparatively cheap coal but it is also the worst polluter. Natural gas in both conventional and non conventional forms has provided welcome breathing space during justifiable 'Peak (conventional) Oil' concerns but governments would understandably like to reduce environmental risks from all fossil fuels. Power from wind, solar and biomass has to be subsidised and makes only a tiny contribution to global energy demands. Consequently even greens favour nuclear now that a new generation of reactors have reduced Chernobyl-style risks and the previously daunting challenge of long-term waste storage is gradually becoming more manageable.

Recently, nuclear has been the least favourite energy solution because of capital costs and delays in building power plants which can take from 5 to 10 years. Nevertheless, the long-term trend in capital costs and environmental considerations is shifting in favour of nuclear power, as you can see frin this informative report on The Economics of Nuclear Power from the World Nuclear Association (also available in PDF).
Successfully developing countries with large populations, led by China and India, will see the greatest increases in the demand for energy over the next few decades. Consequently nuclear can only play an increasingly important role in meeting their future energy requirements. Their nuclear power supplies today are only a tiny fraction of what they are likely to be in 20 years, not to mention 50 years. China and India are moving to lock in future supplies of uranium while the metal is cheap, as you can see from this additional article from Bloomberg and also the opening item above.


The recently moribund prices of leading uranium mining companies are beginning to stir.

1. Areva SA (weekly & daily) is involved in most aspects of the nuclear industry in addition to being the biggest miner. The price is currently languishing in the lower region of what should be a developing base formation. An eventual break above €400 would suggest base completion and trending potential. Patience may be required but a 2% yield partially compensates for the wait.

2. Cameco (weekly & daily) drifted back to the upper side of its October 2008 to April 2009 base before breaking its medium-term downtrend this week. We have probably seen an important reaction low although the share may see a partial pullback and consolidation of recent gains before moving higher. Cameco yields just over 1%. Full disclosure: I have a small holding in Cameco, purchased at higher levels.

3. Rio Tinto (weekly & daily) is the third largest producer of uranium, primarily through its 68.4% holding in Energy Resources of Australia. This provides only a small portion of Rio's diversified mining output. The share is probably a recovery candidate although a break in the recent progression of higher reaction lows would question this outlook. Yielding just under 1%, Rio Tinto is one of my personal top-10 long-term holdings.

4. Kazatomprom is a private company.

5. Uranium Holding ARMZ is a private company.

6. BHP Billiton (weekly & daily) needs to establish a higher reaction low to provide clearer evidence that it is a recovery candidate. The share yields 2.87% and is one of my personal top-10 long-term holdings.

7. Navoi Mining and Metallurgical is a private company.

8. Uranium One (weekly & daily) has had a good rally recently and may see some additional consolidation of these gains. The overall pattern resembles a lengthy (Type-3) base formation as taught at The Chart Seminar. The share has yet to pay a dividend.

9. Paladin Energy (weekly & daily) has steadied recently but still remains in a medium-term downtrend which is probably a lengthy right-hand extension to its small 4Q 2008 base formation. Paladin has yet to earn a profit or pay a dividend.

10. General Atomics/Heathgate does not appear to be listed although there is plenty of information on the Company.


Conclusion - For primarily uranium plays among the 10 biggest producers which show profits, the choices narrow down to Areva, Cameco and Uranium One. However I would describe the chart patterns, including that of uranium as offering long-term recovery potential rather than appearing compelling today, although this can change quickly given a shift in market sentiment. My preference among these companies would be Cameco, despite the share remaining under a cloud following the Cigar Lake project's floods in 2006 and 2008. The earliest estimated date for uranium production at Cigar Lake has been pushed back to 2013. Nevertheless I prefer Cameco for its McArthur River mine which produces by far the highest grade ore in the industry.

Looking further afield, I would consider Toshiba Plant Systems (weekly & daily) which is the leading builder of nuclear power plants and remains a strong performer relative to Japan's stock market indices. Toshiba is a more conservative choice than any uranium miner. The share currently yields 1.35% and has a growing order book.