If there’s one area of the commodities markets that’s looking extremely cheap right now, I would say it’s uranium. Or rather uranium junior mining companies.

Uranium is in a bear market; the trend is most definitely down. But we are reaching a point where it’s hard to see how some of them can get much cheaper.

The problem is people have been calling the bottom in uranium for some six months or more now and they’ve all been wrong…

Nuclear energy development is gunning ahead at nuclear speed

The fundamentals for uranium remain extremely strong. At the moment nuclear power is probably the closest thing we have to the silver bullet that is going to deal with the looming global energy crisis. Despite the fear which surrounds nuclear energy, France – 80% of whose power supply is nuclear – has demonstrated that even relatively small nuclear reactors can fuel entire cities cheaply, efficiently and cleanly.

Meanwhile nuclear energy development in Asia is gunning ahead at, well, nuclear speed. We all know about China’s appetite for energy and what they are capable of. Last month they completed a brand new airport in preparation for the Olympics. The entire process took four years. (It took us six just to get planning permission for Heathrow).

It seems they are applying that same speed of construction to the nuclear sector. Reuters recently reported that a senior Chinese energy official told state media that China is ‘expanding nuclear power construction plans faster than earlier planned … installed power capacity by 2020 could be 50% above the initial goal.”

The original plan was for an operating power capacity of 40 gigawatts by 2020. That’s roughly equivalent to the total power demands of Spain. It’s a mere 4% of China’s energy needs. But that figure is now going up to 60 gigawatts.

The supply is unlikely to meet the demand

Uranium supply on the other hand is not increasing by a corresponding amount. Though uranium is an extremely common metal – as common as tin or zinc – there are numerous problems mining it, many of them to do with permitting, and it takes well over five years to get a mine into production. Much of recent supply has come from old military stockpiles, a source which is quickly drying up.

In the 1980s and 90s, uranium got so cheap – as low as $7 a tonne (it is ten times that price now) – that uranium mining and exploration became completely uneconomic and almost completely disappeared. This meant that very little new uranium was actually coming to market as the noughties got underway.

This uranium story became widespread throughout 2006. Then there was that flood at Cameco’s (the world’s biggest uranium mining company) Cigar Lake mine and that was the catalyst for a run in uranium prices that ran through to spring 2007 and reached bubble proportions.

Since then the sell-off in the sector has been agonizingly painful and many companies are off 80% or more from their highs.

Here’s a long-term chart for uranium:

Adjusted for inflation, it looks more like this, though the recent pullbacks are not shown:

And, finally, here’s the uranium price over the last two years:

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