Uranium: The Forgotten Commodity

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The success story of 2016 for investors so far has to be commodities. Precious metals – gold and silver – have surged since the turn of the year. Oil is rapidly recovering from its $20 a barrel lows. Despite the bullish beginning enjoyed by these commodities, I really think that uranium could outperform oil, gold and silver over the next few years.

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Uranium is undoubtedly the forgotten commodity. Nowhere near as accessible as some of its peers in the energy market, uranium is often overlooked. High-profile nuclear disasters such as Fukushima have had a crippling effect for the commodity’s fortunes. However, despite the problems of uranium, it has plenty to offer. In the words of uranium explorer Paul Gray, “It’s impossible to find another natural resource that is so fundamentally necessary and yet has carried such negative sentiment as uranium. The market has been skewed by negative sentiments that ignore the supply and demand fundamentals”. As the sentiment begins to curtail, countries are beginning to become aware of the potential that uranium can offer. 

Rising Demand

Nuclear energy doesn’t emit greenhouse gases, which is important in a sector increasingly stricken by environmental concern. Also, nuclear energy offers an environmentally sustainable solution that is cheaper and more affordable than many alternatives out there currently. As a result, uranium demand is on the rise. China alone has indicated that they could have as many as 80 power plants by 2025. India is also significantly ramping up its uranium demand. The US have initiated an $82 million funding program for new reactors, while the UK has earmarked £250 million for nuclear energy development. The major world economies are beginning to reconsider nuclear energy as a viable energy alternative. As a result, demand for uranium is and will continue to increase.

Supply Shortage

Having been out of favour for so long, there will be an inevitable shortage in supply. Numerous producers and miners have been wiped out by the lowly commodity prices. David Talbot, nuclear analyst, suggests there uranium deficit of up to 20% for the nuclear reactors that are currently in operation. Morningstar analysts suggest the spot price of uranium could double by 2018. This presents an opportunity for investors. High-profile investors have already made a move – George Soros, Bill Gates and Paul Allen have all boarded the uranium train.

Investment Opportunity

Getting exposure to uranium for retail investors is not as easy as some commodities. You can not trade uranium as a commodity (at least, both my brokers IG and Spreadex don’t allow me to). As a result, the easiest way to get exposure to uranium is through a stock associated with the commodity. I currently hold shares in Berkeley Energia (LSE:BKY). Berkeley Energia are high-impact, low-cost energy company with a market cap of roughly £60 million. A really exciting, young stock that look a great investment opportunity for those looking for exposure to uranium. Even accounting for the struggles in the uranium price, Berkeley Energia’s economics look mightily impressive. If uranium is coming to the bottom of the cycle, then Berkeley Energia is one of many uranium companies that are primed to capitalise magnificently.

Author Bio: Trader Tim is a writer for a number of financial publications including ADFVN, TradeSignaller and 7circles. He also writes for his own blog, Trader Tim’s Blog, which includes trading thoughts to help other traders learn from his successes and failures. He donates 10% of trading profits to charity at the end of each month. He can be reached via Twitter at @TraderTim5.

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