Uranium equities and related exchange traded funds virtually collapsed today following news that nuclear reactors in Japan had been damaged by an earthquake and tsunami. Cameco, the largest uranium oxide producer in the world, saw its share price fall as much as 23 per cent. Destruction of the nuclear reactors raised investor fears about demand for uranium fuel and the availability of electricity from nuclear power plants.
Share prices of uranium equities and related ETFs over-reacted to the news. The disaster in Japan will have a short-term blow to the industry, but its impact is not expected to last long. Demand for uranium fuel and nuclear power is expected to continue to grow. At present, plans have been made to build 155 nuclear reactors to add to the world's capacity of 442 reactors. Location of most of the planned reactors is Asia. Some 65 reactors currently are under construction. Japan prior to the disaster had 54 reactors, had plans to construct 12 new reactors and currently is building two reactors. Japan had plans to decommission its 40-year-old reactors, including the reactors destroyed in the disaster and to replace them with new ones.
The easiest way to invest in the sector is through ETFs. Three funds are available. Each has its own unique properties.
Uranium Participation Corp. is a holding company that invests substantially all of its assets in uranium oxide in concentrates or uranium hexafluoride. Its price tends to track the spot price of uranium oxide. The spot price of uranium oxide surged from $40 (U.S.) per pound last July to a peak in early February of $73 per pound. The latest quotation was $66.50 a pound. It is unclear how soon the impact of Japan's crisis will hit the spot market due to its limited number of participants. A substantial amount of uranium is sold on long-term contracts to utilities. Free quotations on the spot price are available weekly at http://www.uxc.com/review/uxc_Prices.aspx.
The Market Vector Uranium and Nuclear Energy ETF tracks a global basket of 23 nuclear energy stocks. The basket includes nuclear power producers, miners and companies serving the nuclear power industry. Largest holding are Constellation Energy Group, Cameco, Exelon, Paladin Energy, Electricate de France, Fronteer Development, Ariva and Denison Mines. Management expense ratio is 0.66 per cent.
The Global X Uranium ETF entered the market last November. Units track a basket of 23 global uranium stocks. Largest holdings are Cameco, Uranium One, Paladin Resources, Denison Mines and Uranium Energy. Management expense ratio is 0.69 per cent.
On the charts, two of the three ETFs are oversold at current prices. Uranium Participation units have long-term support near $6.50. The Market Vector ETF has long-term support near $20. The Global X ETF broke to an all-time low following the Japanese disaster and has yet to indicate a long-term support level. Investors considering an investment in the sector may want to wait until the sector shows technical signs of bottoming.
Don and Jon Vialoux are authors of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. Reports are available at http://TimingTheMarket.ca and http://EquityClock.com. They also are research analysts with JovInvestmentManagement Inc., which offers the Horizons AlphaPro Seasonal Rotation ETF traded on the TSX under ticker symbol HAC.