On the heels of recent quotes from Rio Tinto (NYSE:RTP) and Cameco (NYSE:CCJ) on the impending shortage of uranium supply in future years, Areva (Paris:CEI.PA) announced today that it aims to double its uranium production within three years. Areva produced about 6,300 metric tons of uranium in 2008, and said it hopes to produce 12,000 tons in three years (2012). Sebastien de Montessus, the director of Areva's mining unit, said market prices for uranium "has to go up to $70 to $80" before other producers will go ahead with new projects. The current price is $55.
This was a good strategic move for Areva. By telling its competitors of its intention to significantly ramp up production in three years, it will deter some competitors from planning significant increases as well. No one wants a situation of oversupply, especially at current uranium prices. But you can expect other miners to ramp up production, once prices recover to around $60-70.
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Demand
The World Nuclear Association reported that approximately 15% of the world's electricity is generated from nuclear energy, and it expects electricity demands to double from 2004-2030. Assuming, conservatively, that nuclear energy maintains its 15% share of electricity generation, you could potentially see nuclear reactors doubling to around 800-900 reactors worldwide. A lot of this growth will likely be in India and China but if there's a shift in sentiment in the U.S. towards nuclear, 800-900 reactors by 2030 could be a gross underestimate.
Areva recently signed an agreement in early 2009 to provide India with up to six new nuclear reactors. The deal came after a landmark deal with the United States that brought India out of nuclear isolation and signaled its commitment to utilize nuclear energy. In addition to the reactors, Areva also signed an agreement to supply 300 tons of uranium to India per year. It appears Areva has the inside edge on this fast growing market, and this serves as evidence of its ability to win lucrative contracts.
The Bottom Line
Big names like Areva and Cameco are good names to look at if you're deciding to invest in the uranium industry. Both are heavily diversified and have the scale and reputation to land lucrative contracts and partnerships. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
