The Yajnik Letter

I have touched on this before. However, with the recent rise in precious metals and energy, I thought it may be useful for all of you if I explained why am I a fan of uranium. On a high level, the reasons are:

1. The world must go nuclear – Nuclear has been an unpopular option for the world ever since the Three Mile Island incident in 1979 and Chernobyl in 1986. However, as the world looks to cut back carbon emissions, even former opponents of nuclear are beginning to embrace it as a lesser evil. Consider the words from the co-founder of Greenpeace, Patrick Moore: “Nuclear energy is a key technology for the future and [there] should be a resurgence of this technology happening now.”
2. The ending of the HEU Agreement between the U.S. and Russia in 2013 – The HEU Agreement between the U.S. and Russia, also dubbed the Megatons-to-Megawatts program, converted Russian nuclear warheads to useable fuel for American nuclear reactors. This has supplied a large percentage of the American uranium needs for the past decade. The program is ending in 2013, and the uranium to replace this source will need to come from somewhere else.
3. The China factor – China currently generates about 3% of its energy from nuclear. If it reaches the regional average of 25%, it will need 8 times more reactors than it has now, putting further pressure on global uranium stocks.

Uranium had experienced an unsustainable rise in price  (similar to oil surpassing $140) in recent years and when the financial markets and the residential real estate sectors collapsed, hedge funds and other investment groups were forced to sell their profitable uranium holdings to improve their own liquidity positions to help cover the sudden losses in the two previously mentioned sectors. Now with the long-term futures price holding steady at $52/lb and with oil, gold, and silver steadily rising, it’s a matter of time for uranium to join the parade.

You might be asking how to invest in uranium? There is a futures market for this metal but the volume isn’t that great. I invest in uranium through mining companies and diversified energy and metal funds. Some of the ones I like include FRG (Fronteer Development Group), PNPFF (Pinetree Capital), LMRXF (Laramide Resources), and MGAFF (Mega Uranium). Some of the larger miners are Cameco (CCJ), Shaw Group (SHAW), and Areva (CEI.PA). Cameco has had some problems with getting some of its mines online due to ongoing flooding issues. Keep in mind that my mentality in investing in this sector is to hold my investments with a long-term mindset. It’s very tough to day trade or have a short term mindset with this sector since trading volume is relatively low and the thesis is that emerging nations such as India and China will be building more nuclear reactors over the next 10 years to solve their own energy problems. Also, I would hope that the US will get on board and seriously consider nuclear energy as a sustainable and green energy source. Also, with regards to safety, the regulations and standards are far superior to those of the past. More people die annually from working in the coal mines than from uranium mines or nuclear reactors.

Overall, nuclear energy, and thus uranium, is something that I am very bullish on and will continue focusing on and investing in over the next few years. You may want to begin thinking about the “other yellow metal” yourself. There will be a lot of money to be made.

-Samir