GTIC Goes Nuclear

The November cold weather has reminded us that we need energy to heat us, move us and power everything that we do. With the price of oil touching a $100 a barrel, people have started looking for cheaper and cleaner energy alternatives. Uranium fits this description perfectly and this could be why the price has gone up over 1000% over the last 5 years. Doesn't this price rise mean that we have missed the boat? The big gains are over? Think again, Uranium has rocketed up as a commodity but will continue to rise due to simple fundamentals like supply and demand.

Lets start with some facts about Uranium. Currently there are 437 Nuclear Reactors around the world producing 16% of the world's electricity. These reactors demand 173 million pounds of Uranium per year. In 2006 there was 102 million pounds of Uranium produced. The shortfall of Uranium was made up by dismantling nuclear weapons. This will change soon as we are slowly running out of weapons to dismantle. This demand is set to increase substantially as there are currently 32 reactors under construction as we speak. There will be an additionally 288 reactors built by 2025. Lets just say that Uranium is not going away. The fears of three mile island and Chernobyl are still there but the technology and safety of reactors has improved considerably. In the end it will come down to keeping the lights on. Without nuclear energy, the world will not be able to meet the electrical demands of an increasingly "consumptious" society.

So to take advantage of this situation, what should an investor do? To begin, the producers are where it is at as they will be able to take advantage of the demand and rise in price immediately. Currently there are only a handful of producing companies out there. Cameco is the largest, followed by Areva, BHP/RIO, and some Russian producers. Next there are the new producers on the block. Uranium One has been aggressively building its portfolio of properties and will be bringing some of them into production next year. Unfortunately, they just announced that they will not be able to meet their production targets due to a lack of sulphuric acid which is used in the production process. This has been bad news for Uranium One shareholders but I think good news for other Uranium producers as it will just drive more demand for the commodity. That leaves two other companies to choose from, Paladin Resources or Denison Mines. I like both of these companies but Paladin appears to have a slight advantage over Denison. Here is why Paladin Resources is the place to play for Uranium for the next few years.

Paladin is not a small company as it has a market cap over 3 Billion dollars. They have 47% institutional ownership in the company. They have just started production at its Langer Heinrich mine in Namibia where they have just expanded there resources to 106 mlbs of Uranium. This expands the life of the mine to 12 years, producing 7 mlbs of uranium a year. Another mine is set to start producing in Kayelekera, Malawi in 2008. This mine will produce 3.3 mlbs of uranium a year for 11 years. They also have four properties in Australia that are very prospective development projects. They hold a 82% holding in Summit Resources which is in the pre-development phase of the Vahalla (resource of 71 mlbs of Uranium). Overall, Paladin has over 279 mlbs of Uranium as its resource base. They are doing everything at the right time and there will be demand for there resources for years to come. There average cost to produce Uranium is $20lb. That leaves a lot of room for profit. They should be producing 8 million pounds a year by 2009. If Uranium just stayed at its current price, they would be generating 720 million dollars of revenue a year. Not bad.

To conclude, Paladin is a great way to get some exposure to the "Hot" Uranium market. Although the price of Uranium has come down from its highs it hit this spring, it is starting to rebound which means this is the perfect time to buy. The hidden added bonus you get with this company is the fact that they are a very attractive takeover candidate. With two producing mines, big companies like Cameco and Areva will be looking at Paladin as a quick way to increase there own production profiles. Cameco has disappointed shareholders with their Cigar Lake Mine and may never get it into production. This has been one of the reasons for the rise in the price of uranium. More problems at Cigar Lake would virtually force them to look elsewhere for production. There is not too many choices out there and Paladin is probably the best one.