Superman Avoiding Kryptonite – Considers Investing in Uranium
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At a recent Investor's conference I talked to the Man of Steel who reported his renewed interest in Uranium while avoiding Kryptonite altogether. "For obvious reasons I'm risk-averse as concerns Kryptonite, but I'm researching the opportunities in Uranium and the companies that have projects in this area."
Rio Tinto (NYSE: RIO) engages in finding, mining, and processing mineral resources. Major products are aluminum, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals and iron ore.
Cameco (NYSE: CCJ) is one of the world's largest uranium producers. The Company's uranium products are used to generate electricity in nuclear energy plants around the world.
AngloGold Ashanti (NYSE: AU) primarily engages in the exploration and production of gold. The Company also produces by-products, such as silver, uranium oxide, and sulfuric acid.
From an investment standpoint, these corporations offer opportunities to investors, while at the same time having risks inherent in them.
What are the risks that investors should consider? Three in my estimation are:
1. Nationalism Concerning Resources
Bruce Sprague (Ernst & Young's National Mining and Metals Practice Leader) reported this in his article in the Canadian Mining Journal (January 2013 issue). He said that governments worldwide continue to enforce new taxes, levies, as well as royalties on the extracting of their resources. Therefore, going forward investors must research the increased costs companies are likely to face by engaging in projects in foreign jurisdictions.
2. Political and Labor Upheaval in Foreign Jurisdictions
Sometimes it pays investors to stay home – as in how far their investment dollars travel. Consider the case of Iamgold (NYSE: IAG); though they're not mining uranium they nevertheless are experiencing the negative effects of political upheaval and uranium and other mining entities face the same risks this company is currently facing.
The Company is reducing exploration activity in Mali. In fact, 50 percent of Iamgold's output comes from their mines in Mali and neighboring Burkina Faso. They're reducing their activities as a precautionary measure due to the Mali conflict. Islamic militants have taken over a significant strip of the region.
In addition, concerning AngloGold Ashanti Ltd., workers at the three West Wits and balance of the Vaal River (gold, uranium) regions' operations joined the unprotected work stoppage on September 25, 2012. Investors may want to look at how many domestic as opposed to foreign projects a company in their sightlines has in their project portfolio.
3. Nuclear Reviews… and China
Uranium enterprises face the specter of losing markets in countries that are reviewing their nuclear programs. Investors must consider that some nations are, or are considering, shutting down nuclear power plants. Due diligence involves knowing if a company has uranium products that generate electricity in nuclear energy plants in such countries.
Concerning China, mining companies are taking a hit, as in write-downs, because of putting a good portion of their eggs in the China basket. It's been a slow boat of returns from China, as the country experienced lethargic growth in 2012. The Financial Times reported this month that the official Purchasing Managers Index (PMI) for new orders increased to 51.6 in January from 51.2 in December. However, the category for exports dropped to 48.5 from 50. This indicates that external demand is listless; domestic demand is the primary growth driver. Consider how much exposure a company you're interested in has in China.
What's the upside for investors concerning the above corporations' engaging in uranium initiatives? Three upsides in my estimation are:
1. Abundance of Supply
Rio Tinto is one of the world's major producers of uranium. The use of their uranium is exclusively for the generation of nuclear electricity. The Company operates the second and third largest uranium mines in the world. These represent approximately 16 per cent of worldwide supply. Rio Tinto states that they are able to help meet growing demand for nuclear power through increasing production from their existing uranium operations.
2. Major Acquisitions
On January 9, 2013, Cameco announced that they obtained all required regulatory approvals and completed the acquisition of NUKEM Energy GmbH (NUKEM), one of the world's foremost traders and brokers of nuclear fuel products and services. NUKEM has engaged in the nuclear energy industry for over 50 years. The Company has developed strong relationships with customers and suppliers involved in the fuel cycle. Quality acquisitions by companies, which can add to revenues and profits, can lead to the price appreciation of their stock.
3. Focusing on Efficiency of Operations
AngloGold Ashanti Ltd.'s processing initiatives over the years have included establishing uranium-leaching conditions for maximum extraction of uranium from their Vaal River operations. The Company's Vaal River operations have among them four gold plants, one uranium plant and one sulphuric acid plant.
Superman's not sure if Uranium in 2013 will cause these stocks to rise faster than a speeding bullet or head just as fast in the opposite direction. Nevertheless, "I'm performing my due diligence, he stated. "I'm hoping Lex Luther, Darkseid and such will not be so savvy, and will have to file for arch-enemy bankruptcy."
MichaelONTARIO has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!