James Dines: "One of the Greatest Bull Markets in History"
Source: The Uranium Report (7/16/07)
A URANIUM REPORT EXCLUSIVE: James Dines, the "Original Uranium Bug," legendary financial prognosticator and editor of The Dines Letter, gives us his latest insights on the uranium market.
JD: When the price got to $150, there was suddenly a surge in popularity in the uraniums. That’s when I said: it’s time to sell half of the uranium metal—not the uranium mining shares, but the metal. You need to separate them. The average investor might think they would move together, pari passu, but they do not.
Uranium metal is purchased by people who are desperate for it in a shortage, plus speculators, whereas uranium mining shares fluctuate according to the rules of mass psychology. For example, this summer, uranium mining shares went down because the whole metals market went down. So, we felt that $150 uranium was a pretty good price; it’s come up from $7.10, which for a commodity is one of the great bull markets in history. I wouldn’t be surprised to see it oscillate at fairly high levels for some time.
UR: If the share price fluctuates because of the market psychology, and this is the first flat period for the uranium commodity price, why wouldn’t we expect to see the mining stocks go down?
JD: They move, as I said, under two entirely different gestalts. Those who run nuclear power plants—are desperate to build up their inventories because if they don’t get uranium, their lights go out, and their jobs will be gone. And some of the consumers might be a little upset. So, that’s one psychology, plus the hedge funds have been buying uranium—whatever is left—and that’s why the demand was so intense. The mass psychology was one that recognized the desperation of the shortage on the amount of uranium that will be needed. …
Stocks are entirely different. They’re mostly exploration and development, so they’re riding on whether or not they’ll find anything, which is a very [different] type of mentality. It’s a question of what they’ll find, how deep it is, whether it can be done from surface mining or underground; whether it’s under a lake; whether there are native issues, and a plethora of other considerations that impact on the price of a share of stock. . .And the mass psychology of those who buy uranium, and those who buy uranium mining shares, are just different, which is why they don’t necessarily move together… Uranium mining shares have had about five consolidations since we turned bullish on it at about $8, seven years ago, whereas the price of uranium itself, the metal, has had none.
UR: When we look at the 20-year price of uranium, it’s definitely been parabolic—it’s gone straight up. One would typically think that you could get a correction. In terms of supply and demand for the yellow cake itself, what event should an investor be looking for? President Bush talking to President Putin? Could the U.S. start to dilute warheads to get more uranium for the utilities?
JD: Well, they certainly could; I am not sure that they will. The bottom line is still that everything takes time. You don’t just take a nuclear warhead, mix in some alcohol, sand it, and get something that you can run a nuclear power plant with.
The problem is that from 1980 onward, for about 20 years, the uranium mining industry was in a horrific depression, brought on by dilution of the nuclear stockpiles of America and the former Soviet Union. They just dumped uranium at any price, and took it down to $7.10, which basically stopped all uranium mining exploration. They were just trying to stay alive; few companies survived. When I first turned bullish on it, uranium was the single most hated investment idea on the planet. . . .but electricity is dangerous and so is coal. People die from natural gas explosions, and it comes down to whether you want to use nuclear power or shiver in the dark. Because at some point, the oil is going to be gone, whether it be the result of using it all up, or a terrorist act of blowing up a terminal in Saudi Arabia, and they have already tried several times. So, on the supply side you’ve got very serious problems, and we could be cut off from our oil with almost no notice.
Getting back to your question, the reason it is so hard to tell what’s going to happen is, first of all, you have global warming. This has been one of my struggles for several decades … but now, it’s for real. I mean, people really get it; they can see it happening. So, for the first time in the history of humanity, the large-scale production of energy will be constrained from burning something to get the energy we need. It’s going to have to go to hydro, geothermal, wind or whatever—none of which will be enough to provide the energy to replace petroleum, unless you want to start putting windmills on airplanes. And that is one of the key factors, meaning that the age of carbon burning is going to be severely limited, and for oil, probably eliminated.
The other major factor is the transformation of the entire world from a primeval state to the accelerated growth that millions have been watching in the movies and on the radio—all the rich people driving rich cars in America, with televisions and air conditioners. And they want them, also. The demand for energy is going to go parabolic. You have a situation where the amount of uranium available in the short term [is low], because of the [earlier] shortsighted and irresponsible dumping of uranium to destroy the industry, yet there’s plenty of uranium in the world. There’s not a long-term shortage. There’s enough uranium to fill our needs for the next few centuries, and by then we hope to have fusion power.
Certainly for the next 5 to 10 years, there will be a hysterical shortage. But with the demand for power accelerating, trying to figure out exactly how much power we’ll need has given me a splitting headache, because there are two moving objects. You have a supply of uranium, which is increasing very slowly, but it’s coming, and meanwhile, demand is accelerating. China is going to need thousands of nuclear power plants. China’s talking about 35 by 2020
UR: Haven’t the Chinese made deals with Australia?
JD: There was one deal that allowed the Chinese to open a mine in Tasmania and they’re negotiating elsewhere. But Australia itself is what I call the “Saudi Arabia of uranium”. It is going through its own geopolitical metamorphosis—from being the arch-hater of uranium to suddenly reconsidering it. Whereas at $7.10, they scorned uranium; at $130, they’re reconsidering it because Canada is walking away with the market. And Canada, as the second largest owner of reserves, has no such negative compunctions.
UR: Where do you think America is going to get its uranium?
JD: What makes you think they’re going to get it? My country’s asleep. I’ve done everything I could to awaken them. They don’t want to hear it. In fact, they’re talking about assuring a supply for India, but don’t have anything assured for themselves.
UR: True. There’s no speculation at this point in terms of Utah, Wyoming and parts of New Mexico that were using in situ to extract uranium, back in the ‘70s. Do you think that’s going to come on-stream?
JD: Well, even with ISL (in situ leaching), it’s going to take 5 to 10 years, and permitting is a nightmare, so, no, I see the shortage continuing. I think by about 2015, there will be plenty of uranium around.
UR: Did you ever recommend that we buy uranium per se? Stocks, yes.
JD: I wrote in The Dines Letter that you could buy either one, but that the metal itself was less exciting because it lacks leverage. If the price of the metal doubled, you doubled your money. But doubling the price of uranium suddenly turns all kinds of uneconomic ore reserves into uranium mines. Going from a moose pasture to a uranium mine is phenomenal leverage, and my preferred recommendation was to buy the stocks. They have done much better than the metal, actually.
UR: Absolutely, but you’re still recommending that people hold those, and actually buy on dips, correct?
UR: So, Australia has political issues, and America seems to be blind. Does that leave us with the best returns in Canada or Russia?
JD: I like Australia a lot. It’s politically stable, and has a very warm, close, long-term historic friendship with America and Canada. What I recommended is a uranium cartel so that when OPEC confronts us on oil—we have something with which to negotiate and say, “You know, you’re going to be through with oil some day, and you’re going to need this uranium,” and pull a “Just you wait, Henry Higgins” on them. I strongly recommend Australia and Canada. Canada, especially, is very friendly towards uranium, and there are other areas.
I advise investing in uranium in as many countries as possible because I don’t trust any of them. Russia, for example, has suddenly decided it doesn’t want to sell us uranium and needs it for itself. We’re coming into a new world where, instead of commodities being traded freely, because of accelerating growth, raw materials are being looked at as a national asset rather than as a commodity being traded away for paper money.
UR: You've given us a lot to think about and we appreciate your sharing your insights with our readers.