Reuben Gregg Brewer reports that the uranium that Cameco Corp. mines is the fuel that powers nuclear reactors. Nuclear power has a bad rap thanks to a small number of high-profile disasters, and that's led to a supply/demand imbalance that has pushed uranium prices to multi-year lows. Cameco is the top stock to consider buying in uranium now, however, because it has the financial strength to make it through this downturn.
U235 is an unstable version of the element uranium. To greatly simplify a very complex process, this means that U235 can be broken split relatively easily to create energy and a more stable version of itself (U238, which is far more common in nature). This is called nuclear fission, and it's what powers nuclear bombs and nuclear electric power plants. When fission is controlled it's a very safe and reliable way to generate electricity. Uncontrolled fission reactions are, to put it mildly, very dangerous.
Uranium miners like Cameco and Rio Tinto dig up vast quantities of uranium, but since most of that ore is U238, it must be processed to pull out the heavier U235 to create the fuel with which nuclear reactors are powered. So while uranium is surprisingly abundant in the world (it's more common than gold), the useful variety is a lot harder to come by.
Brewer learned a great deal about harnessing the power of uranium. A nuclear bomb is basically uncontrolled nuclear fission, and a nuclear power plant attempts to control that process, using the energy created to generate steam to spin an electric turbine. But the learning process has happened over time, and accidents have taken place. Some of the notable names associated with uranium and nuclear power are Three Mile Island ( no deaths), Chernobyl (Russian), and, most recently, Fukushima (no deaths)..
The 2011 Fukushima reactor meltdown was a perfect storm of sorts, caused by an earthquake followed by a tsunami that overwhelmed this Japanese nuclear power plant's safety features. The meltdown was watched in real time the world over. In hindsight, the plant's safety features weren't as robust as they could have been. Japan shut all of its nuclear power fleet in response (it started to bring plants back online months ago), and a few other developed nations quickly announced plans to reduce their use of nuclear power as well. This event, and the backlash it caused, led to a severe supply/demand imbalance in the uranium market. Prices have been in a downtrend since that point.
That said, nuclear power plants are still being built around the world. And newer plants have taken the painful lessons learned in Japan to increase the safety of these facilities. There are 56 new reactors under construction today, mostly in developing nations in China and Asia. Cameco expects more will be built. Electricity demand in these countries is expanding quickly as they move up the socioeconomic ladder, and nuclear power still appears likely to be a key player in meeting that demand. However, nuclear power plants are time-consuming to construct, so demand has yet to pick up.
But major players like Cameco are working the other side of the equation by reducing production. So there's a change coming on the demand side, and the supply side is rationing in an effort to bring supply and demand back in balance sooner rather than later. The end of the uranium downturn is impossible to predict, of course, but at this point, Cameco can buy uranium at spot prices for less than it costs to mine its own. Since Cameco's mines are generally efficient, low-cost operations, that's a big statement about the current state of uranium prices -- but it's also a step in the right direction to push prices higher in the future.
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