[Benjamin]

Atomic profit potential
Commentary: Forget gold and silver; buy uranium
By Sean Brodrick, Money and Markets
Last Update: Apr 3, 2006


JUPITER, Fla. (M&M) -- The hottest metal isn't gold or silver -- it's uranium. Prices are up 80% in the past year and 13% just since the beginning of this year. Have you missed the big move? Not by a long shot.
Uranium demand can't be turned off with the flick of a switch. Once a nuclear plant is fired up, it needs to be fed for a long time to come.
For my money, there's a U.S. uranium explorer that you can pick up dirt cheap -- but first, why is uranium so white hot?
Today there are 441 operational nuclear power reactors around the world. According to a report by the International Atomic Energy Agency, or IAEA, 130 new nuclear power plants are either being built or are in the planning stages. Some put the number of planned reactors as high as 160!
China currently has nine reactors in operation at three nuclear plants with total capacity of 6,600 megawatts. That provides just 2.3% of China's power consumption. China set an ambitious goal for 36,000 megawatts of nuclear capacity by 2020.
To meet that goal, China plans to build two new 1,000 megawatt nuclear reactors each and every year -- 28 in all. And the World Nuclear Association forecasts that China's annual uranium needs would jump from 3 million pounds per year now to 10 million pounds per year by 2010 -- then 18 million pounds per year by 2020.
India, meanwhile, generates about 3.7% of its electricity with nuclear power. India's total nuclear capacity is around 2,700 megawatts, with 14 commercial reactors in operation at six plants. India plans to have 10,000 megawatts of nuclear capacity by 2010 and 20,000 megawatts by 2020.
India's uranium requirements should grow from around 1 million pounds per year currently to 2 million pounds per year by 2010 and more than 4 million pounds per year by 2020. India's own uranium production will likely be just 1 million pounds by 2010. That means India is going to be a huge net importer of uranium.
China is about to sign a new deal to buy uranium from Australia. India can buy from Russia, but not for long. Last year, Russia's three uranium mines produced 3,657.5 tons -- just one-fifth of the 17,600 tons Russia consumes per year in its reactors, military, and export obligations. In fact, Russia had to draw on reserves (old warheads) to fill its demand for 2005.
Just recently, Russian President Vladimir Putin said nuclear power's share of Russia's energy use would increase from 15% to 25% by 2030. To get from here to there, Russia needs to add 40 gigawatts of nuclear energy each and every year -- building 40 new nuclear reactors by 2030.
And that means Russia, along with China and India, needs to find a lot more uranium -- quickly!
Demand outstripping supply
Total global uranium consumption is currently estimated at 176.3 million pounds. Of that, only 92.6 million pounds, or 47%, was supplied directly from mining (there are stockpiles, but they are dwindling). By 2015, demand will likely hit a whopping 212 million pounds per year.
Add it all up, and we're looking at uranium shortages for at least the next decade. Select uranium miners will be on fire this year.
The two best countries for uranium stocks are Australia and Canada. Canada even has a neat exchange-traded fund, Uranium Participation Corp. (CA:U: news, chart, profile) , that tracks the price of uranium the way the StreetTracks Gold Trust (GLD : streetTRACKS Gold News , chart, profile, more
Last: 58.45+0.35+0.60% GLD58.45, +0.35, +0.6%) tracks the price of gold. And as you can see, U has taken off like a rocket lately (Full disclosure, subscribers to my Red-Hot Canadian Small-Caps have U in their portfolio). It should have a ways to go. Uranium currently trades at $40.60 per pound, and my price target is $55 in the next year -- a 35% rally.
But you can play the uranium rally in the U.S. stock market. That brings me to today's pick: Fronteer Development Group (FRG : fronteer dev group inc com
News , chart, profile, more
Last: 4.45+0.24+5.70%FRG4.45, +0.24, +5.7%) . It's a gold and uranium prospector that is making all the right moves. For one thing, it focuses on exploring in Canada, Turkey and Mexico -- all stable countries that are exploration friendly.
Did I mention gold? Yes, FRG is working on two large gold/silver deposits in western Turkey called Agi Dagi and Kirazli. The totals for the two projects:
Indicated gold: 461,000 ounces
Inferred gold: 1,606,000 ounces
Indicated silver: 2.1 million ounces
Inferred silver: 8.6 million ounces
Have you seen the price of gold lately? How about the price of silver? I like these resources because it gives Fronteer a diversity of metals, all red-hot.
Uranium's new frontier
Fronteer recently acquired an 80% interest in a new copper-gold-uranium district in the Yukon called the Wernecke Breccias, and will start exploratory drilling there this summer. Its big uranium story, though, is the 50.2% equity interest it holds in its spin-off, Aurora Energy Resources (CA:AXU: news, chart, profile) . Fronteer spun off Aurora to develop its uranium project in Labrador, the Michelin Deposit -- 22 million pounds of uranium with additional inferred resources of 13.4 million pounds.
In addition to Michelin, Aurora owns four other deposits that are ripe for exploiting.
Sure, Fronteer loses money every quarter -- that's par for the course for an explorer. The important thing is Fronteer is debt-free, has plenty of cash, and has great projects. It has a market cap of a paltry $215 million -- its resources are valued at pennies on the dollar.
Now, look at Fronteer's chart: Not only is it trending higher, it is breaking out to the upside! Buzz should continue to build around this stock. It recently traded around $4.50, and I think it's an easy double from current prices.