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A few weeks ago I sat down with Rick Rule, Chairman of Sprott U.S. Holdings. We discussed uranium.
Uranium has been on a tear recently. Stocks are going up fast in the sector. Even large companies like uranium miner Cameco have seen a double-digit move up in a month. The recent move up in uranium comes as a Japanese court just cleared the way for a re-start of some idle nuclear reactors.1
It’s a positive note in an otherwise dreary resource market, but in our discussion, Rick said he wasn’t so sure about uranium in the near term.
He said low oil and natural gas prices would likely get in the way of a sustained rally.
Part of what has held uranium down for the last three years has been the Japanese shutdown of nuclear power plants after the Fukushima earthquake.
If oil and gas are cheap, Japan won’t need to switch on their nuclear power plants, said Rick. They can just keep importing oil and natural gas to burn for power.
Other countries, too, will opt for oil and gas power over the massive costs of building nuclear power plants.
Rick’s not the only one at Sprott who thinks the uranium bull market might not happen right away.
Neil Adshead, an analyst with Sprott Asset Management, is doubtful the uranium rally will continue.
“I do not see what has materially changed for the better,” he wrote recently about the Japanese court’s decision.
“For it to be sustainable, I’d want to see more positive events in the coming weeks.”
Why are uranium stocks reacting so favorably to the news, if it’s not consequential?
“To me, the short-term price action means that a few buyers of size have cleaned up the market in a few stocks they like or already own,” he said.
What does Rick think?
I spoke with him as he just got back to the office.
Rick still firmly believes those nuclear reactors will come back on, he assured me, just not right away (click here to listen to Rick’s answers).
There’s just no other power source that meets Japan’s electricity needs in the long term, he says. That’s why the Japanese devoted themselves to securing their energy needs with nuclear energy after the last oil embargo threatened their entire economy.
So the question is whether the Japanese will restart their reactors in the next year or so, or whether it will happen further out. Rick believes it will happen, but not this year, regardless of the recent court decision.
Rick points out that liquefied natural gas is around $9 per million Btu (British thermal unit), down from $18. It’s serving as a relatively inexpensive stopgap for Japan’s energy needs. So there’s less near-term pressure for Japan to re-start its reactors.
The Japanese restart will have an ‘immediate effect’ on the market when it happens, Rick added, because they’ll need to buy back uranium supplies, and it will put an end to any selling into the market of current stockpiles. So he’s still very bullish on uranium, but doesn’t believe the bull market is imminent.
Besides Japan, countries like China, Korea, Taiwan, and the United Arab Emirates are building nuclear power plants that should drastically increase the demand for uranium, he added.
Neil remains more pessimistic, even over the longer term:
“The oft-touted revival in demand for yellowcake due to Japanese reactor restarts continues to disappoint… Inventory continues to build and prices of thermal coal, gas, and renewables are declining further.”
Neil dismisses the court ruling as minor.
Rick believes cheap natural gas will let the Japanese kick the can down the road.
If they’re right, expect the uranium rally to fizzle soon.
P.S.: Tomorrow, May 1st, is the last day for ‘early-bird’ registrations for the Sprott-Stansberry Natural Resource Symposium, a four-day event in Vancouver, Canada. The conference will feature keynotes from Eric Sprott, Rick Rule, Robert Friedland, Doug Casey, Porter Stansberry, and many others! Click here to reserve your pass!
1 http://www.reuters.com/article/2015/04/22/us-japan-nuclear-courts-idUSKBN0NC1QD20150422
By Henry Bonner ([email protected])
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