King World News just released an interview with legendary investor Rick Rule of Global Resource Investments. Of note is Rule's comments regarding the Tokyo Nuclear Disaster and its impact on the uranium industry. As readers will remember, we here at Black Swan Insights are incredibly bullish on uranium and love the fact that most uranium stocks have fallen 60-70% in the last 5 trading days. It represents a great time to get in, regardless of what the doomsayers say. Well it seems Rick Rule is of the same opinion. He notes that the short-term (90-180 days) outlook is bearish for uranium as investor emotions run wild and everyone fears another Chernobyl meltdown (very unlikely at this point). The anti-nuclear crowd will put pressure on leaders around the world to review and update nuclear plant safety procedures. Furthermore, these activists are likely to capitalize on the incident to promote their ludicrous solar and wind power ideas.
While this is certainly a setback for uranium, the long-term investment thesis remains intact as demand for uranium will far exceed supply in the next five to ten years. In particular, Rule mentioned that the demand for nuclear energy is more dependent on emerging market demand, rather than the western world. Russia, India, China, and other Asian countries need nuclear energy and have little practical alternatives in supplying clean, reliable energy to support future economic growth. This is especially true for China, which has said it is will order a temporary suspension future nuclear power plants pending a review. Rule said it is likely that the Chinese will make a few adjustments to its nuclear policy, like not building nuclear plants near earthquake prone zones. After the review the Chinese can say to their people that they have made the necessary design changes to ensure public safety and will continue building more nuclear power plants.
In the case of the US and Western Europe, you will likely hear a lot of empty rhetoric about how we must stop the development of more nuclear power plants. This will not work in the long term and will not reduce North American demand for uranium. Rule goes on to say that 19-20% of US energy demand is supplied by nuclear power. If you eliminate nuclear power in the US, it would lead to lights out across the US. It is just not a realistic option.
Regarding the price of uranium, it has nowhere to go but up over the next few years. Because of the anticipated supply shortfall after 2013/2014, the world needs higher prices to encourage more supply. At $50 (down from $68 two weeks ago) the price of uranium is not high enough to increase future supply. Rule also mentioned a very important fact concerning the price of uranium and its impact on nuclear power plants. While higher prices can lead to demand destruction for most commodities, this is not the case for uranium. The cost of uranium as a % of total operating costs for a nuclear power plant is very low, meaning that the industry can easily absorb higher uranium prices without it materially affecting demand. This is a vital point that will help to accommodate much higher future prices for uranium.
For speculators, Rick Rule says the recent massacre in uranium stocks is a buying opportunity. The stocks will recover once nuclear meltdown fears abate and the market returns to normality. He expects this to occur in the next few weeks.
FD: I purchased uranium shares this week after watching many of them fall more than 60%. 10% of my portfolio is now invested in uranium stocks. I own Bannerman Resources, Tigris Uranium, Stathmore Minerals, Mawson, Cameco, and Denison Mines. I will most likely purchase additional shares on future weakness.
Related Articles on Japan and uranium:
Ruminations on the Japanese Earthquake: JGBs, Nikkei 225, and Nuclear Meltdown
Breaking News: Japanese Stock Market in Free Fall--Down 13%--Panic Spreads Worldwide
Black Swan Insights