And of course, this is good news for investors in uranium. In fact, it's particularly excellent news for investors in junior uranium companies. Why?
Because the uranium producers, and most of the near-term producers, are known entities. The market knows what the reserves, costs and production numbers are or will be for the assets in those companies. And with most of these companies scheduled to be small producers, they have limited leverage to a rising uranium price.
It's the junior companies who have made a discovery that have the leverage for investors—particularly those wi th large discoveries.
In their Uranium Market Outlook – Third Quarter Outlook 2009 issued June 24, RBC Dominion makes two very important points:
- The current uranium price is too low to spur new supply to meet future reactor needs. RBC says the uranium price needs to be at least US$75 per pound to generate the returns needed to incentivize new production.
- They are forecasting a large uranium deficit in 2014. There will be a uranium deficit in 2009-2011, but the big one starts in 2014.
It's clear that the end users of uranium are also foreseeing supply issues, as both Korean and Japanese utilities have taken equity positions in uranium producers this year.
To get new uranium supply ready for 2014, producers and consumers alike need to secure good assets now. Generally, they do that by buying junior companies that have made big discoveries. This process should keep a bid under the junior uranium companies with promising deposits, and a smile on the faces of their investors.