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This Is What Opportunity Looks Like in Commodity Investing

By Matt Badiali, editor, S&A Resource Report
Wednesday, June 13, 2012

It's been 15 months since the devastating tsunami ripped across Japan and triggered the nuclear crisis at the Fukushima power plant...  
 
Countries like Germany – which has zero seismic activity and rests 9,000 miles from Japan – announced plans to abandon nuclear power. The price of uranium, which powers nuclear plants, tanked...
 
In resources, this is what opportunity looks like...  
 
To make huge gains, you have to buy assets when nobody wants them... And right now, virtually nobody wants uranium. Prices are near the lowest point we've seen since 2008. 
 
A rally here could offer a fantastic money-making opportunity in small uranium stocks. But timing is everything.
 
Take a look at the chart below. It shows Uranium Participation Corp., a holding company that tracks the price of physical uranium. As you can see, the Fukushima disaster in March 2011 devastated the price... and it's continued to drift lower since.
 
 
 
This can't last forever. Negative sentiment and super-cheap prices will eventually shift the balance...  
 
That's the word from my friend Jim Paterson, CEO of Kivalliq Energy, a small uranium explorer with a great discovery in Canada. On a call last week, he told me... 
 
I think you will see that uranium supply side won't be able to meet demand in five to seven years. And that's great for us... that's exactly what we want to see. 
 
Of course, you would expect the CEO of a uranium explorer to be upbeat about the uranium market. But Jim has reason to be optimistic...
 
To start, one of the largest future sources of uranium – expanded operations at the Australia's Olympic Dam mine – is on hold. 
 
Owned by the world's largest mining company, BHP Billiton, Olympic Dam is the largest-known uranium deposit on Earth. It represents 40% of all the uranium in the ground. Today, it produces about 8.8 million pounds of uranium per year. That's more uranium than we produce in all the mines in the U.S. 
 
BHP Billiton had planned to expand the mine and increase uranium production to about 33 million pounds a year. Now, BHP Billiton seems prepared to delay the $40 billion expansion by at least two years. 
 
That's a colossal amount of uranium supply that would be unavailable if this mine doesn't get built... And it puts enormous pressure on future uranium supplies. 
 
At the same time, a key source of demand may be picking up again... China accounts for 40% of all new reactors under construction. But after last March's Fukushima disaster, China put a moratorium on all nuclear projects. Now, though, China is poised to lift that construction freeze... A return to its 20-year plan for nuclear construction will be a huge boost to demand. 
 
So we have renewed demand combined with uncertain supply. We should begin to see the uranium price respond to those pressures.  
 
If you are looking for the best and safest way to play the uranium miners, consider Cameco (CCJ). This $7.5 billion mining behemoth is the safest pure uranium-mining company out there. And its future looks bright.
 
It collected $2.4 billion in revenue in 2011 and is projected to do $2.3 billion this year. That should rise to $2.6 billion in 2013. Earnings (before interest, taxes, depreciation, and amortization) are projected to rise from $793 million in 2011 to $963 million this year.
 
This is a great company that's been beaten down over 32% this year. It's down 56% from its February 2011 high. If uranium returns to the uptrend it saw two years ago, Cameco could easily double from here. 
 
But it's not time to buy just yet.
 
I want to see an uptrend in uranium first. Until we see sentiment start to turn around... we don't know how far this sector could fall or how long it can languish at its current level.
 
Once we see a shift start to take place... when the fear over nuclear fuel ebbs just a bit... we'll have plenty of time to build a portfolio of high-quality uranium companies.
 
Good investing, 
 
Matt Badiali




Further Reading:

Matt recently showed readers another hated commodity to add to their watch lists... one he believes will outperform gold and silver by several times...
 
"It's a rare metal," Matt writes, "but an economically important one. The automotive industry uses nearly 75% of the world's supply. And demand for the stuff in China and India will grow." Plus, it's insanely cheap right now... Find out the easiest way to speculate on the depressed metal here: The Next Big Commodity Bull Market.

In The Daily Crux
Market Notes
Apple, Visa, and MasterCard top a short list of stocks that are up 50%-plus over the past 12 months.  
 
Royal Gold surges to a six-month high... shares soar 33% in one month thanks to a gold stock breakout.  
 
No sign of a change to the big oil downtrend... AMEX Oil Index sits just 5% above an eight-month low.  
 
Dell and Hewlett-Packard sink 25% since February as the "Death of the PC" continues.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1324.18 +1.2% +4.2%
Oil (USO) 31.42 +2.4% -19.6%
Gold (GLD) 156.46 +0.7% +4.8%
Silver (SLV) 28.12 +1.2% -20.2%
U.S. Dollar 82.40 -0.3% +11.1%
Euro 1.25 +0.2% -12.8%
Volatility (^VIX) 22.09 -6.2% +17.1%
Gold Stocks (^HUI) 447.13 +2.5% -12.1%
10-Year Yield 1.66 +3.8% -44.1%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 132.92 +1.2% +6.4%
S. Africa (EZA) 63.72 +2.3% -6.2%
Japan (EWJ) 8.92 +1.1% -8.9%
Singapore (EWS) 11.82 +2.1% -9.8%
S. Korea (EWY) 54.14 +2.5% -11.6%
Canada (EWC) 25.52 +1.7% -15.5%
Lat.America (ILF) 40.39 +1.5% -16.5%
China (FXI) 33.52 +2.2% -19.3%
Taiwan (EWT) 11.77 +1.4% -19.9%
Israel (ISL) 12.28 +0.0% -21.0%
India (IFN) 19.59 +2.8% -30.9%
Russia (TRF) 13.36 +1.1% -38.7%

Sector ETFs
Symbol Price
Change
52-Wk
Retail (PMR) 24.52 +1.3% +24.0%
Big Tech (QQQQ) 62.56 +1.2% +15.6%
Consumer Svcs (IYC) 79.19 +1.1% +15.5%
Utilities (XLU) 36.83 +0.1% +15.3%
Real Estate (IYR) 61.53 +0.9% +9.4%
Health Care (IYH) 76.15 +1.0% +7.4%
Construction (PKB) 12.67 -0.1% +2.3%
Software (PSJ) 25.23 +0.9% +1.7%
Industrials (IYJ) 66.42 +1.5% +1.3%
Oil Service (OIH) 35.27 +1.8% +0.0%
Big Pharma (PPH) 37.18 +0.8% +0.0%
Transportation (IYT) 90.40 +0.9% -0.2%
Financials (IYF) 53.19 +1.5% -0.4%
Media (PBS) 14.09 +0.4% -0.6%
Insurance (PIC) 15.45 -1.3% -1.0%
Biotech (PBE) 21.43 +1.1% -1.0%
Defense (PPA) 18.68 +0.5% -1.9%
Water (PHO) 17.48 +1.3% -4.6%
Telecom (IYZ) 21.76 +1.4% -7.2%
Semis (PSI) 14.41 +0.8% -12.6%
Basic Mat (IYM) 63.44 +1.7% -14.2%
Nanotech (PXN) 6.22 +3.2% -26.6%
Alt. Energy (PBW) 4.29 +2.9% -49.3%

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