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Here's why you should take advantage of the uranium bear run

Publication Date: 11 Sep 2018 - By David Dhannoo By David Dhannoo
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Equity Fundamental Commodity Equity EU ex-UK UK Metals and Mining

It’s fair to say that Uranium has been dubbed a “hated metal” since the Fukushima nuclear tragedy in Japan in 2011, which has been the largest nuclear disaster since Chenobyl.

The detested metal is currently experiencing its 11th consecutive bear run. Prior to the global financial crisis, Uranium was close to the $137 per pound mark, but a decade later, the price nosedived below $20.

As you can imagine, the industry has made many losses, with big players having to make cuts and even suspend production.

As previously mentioned, the metal is still in a bear market, but it could be a good time to stock up on uranium-based players. Demand has not travelled north on charts, however, evidence from China, for example, shows that 59 nuclear reactors are being constructed. In addition, Asian nations are planning on building 170 for the next decade.

Even more interesting, Japan itself is also looking at restarting nuclear plants.

New Uranium mines don’t appear overnight, and can take many years to be built. A huge positive is that Uranium price has increased for four months in a row, as the chart below demonstrates. 

Source: Bloomberg

So what’s are available for private investors I hear you say? 

Firstly there’s Spanish based Berkeley Energia (LSE:BKY), its Salamanca project is expected to kick-off near the end of the year. The AIM-listed company also joined the Spanish market this year and hit a high of 69p at the start of 2018 and has currently slid to 42p (at time of writing).

The main reason this Spanish miner has been on many investors’ radars is that once its Salamanca mine has been completed, it has been estimated to churn out 4.4m pounds of Uranium concentrate per annum which would make BKY a top global producer.

With the likes of Asian nations such as China and Japan having already rekindled their interest in the metal, Berkeley firmly believes a demand and supply balance for uranium is near.

The second option, and for those who are seeking less risk might be better off looking at Yellow Cake Plc (LSE:YCA).

The concept behind Yellow Cake (named after uranium’s appearance) is to stockpile the metal at a cheap price and wait for things to make a recovery.

Since its IPO back in July, YCA’s share price has increased over 20% (at time of writing) and it’s the closest thing to an Uranium based ETF. As an investor, you’re relying on the metal itself and not a mining company, so this one has a lot of appeal to many.

Any investor who’s thinking of adding an uranium based player into their portfolio must be aware of the risks involved. The metal isn’t for the faint-hearted and the likes of BKY and YCA have not coughed up any dividends just yet, which suggests this is for those who are in it for the long game.

For anyone who has invested in mining companies will be aware of the odd production setback, this is also something to take into consideration.

On the flipside, the yellow metal could prove to be a well-earned investment in the future, only time will tell.

Disclosure:

I have positions in the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

David Dhannoo

 

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