NEW YORK (TheStreet) -- Those involved in the nuclear industry haven't had much to cheer about since the 2011 Fukushima disaster. However, spot uranium, used as a nuclear fuel, is quietly up a whopping 31% since May.
With an increasing number of investors concerned with the outlooks for crude oil and gold, an asset allocation swap into a uranium market with more bullish fundamentals could further fuel spot prices and create a much-needed lift for the miners of the material.
Despite the recent rally in uranium spot prices, there is disconnect between the price of uranium and its miners. Fear of another disaster like Fukushima derailed this group for several years but excitement is building around supply and demand and that should attract investors.
Uranerz Energy (URZ , higher by 13.18% and Energy Fuels (UUUU - Get Report) , up 10.78%, have been bright spots in the space, helped by locking in much higher prices ($57.50 per pound) for their assets long-term. Other names like Uranium Resources (URRE are down a whopping 35.75%, Denison Mines (DNN - Get Report) is down 16.53%, while Uranium Energy (UEC and Cameco (CCJ - Get Report) are off 13.86% and 11.25% respectively.
The price for uranium looks to finally have bottomed at $28 per pound, still far off the mid $70s the material was fetching prior to Fukushima. Strength in spot uranium, which should help the Global X Uranium ETF (URA , seems very credible driven by a growing population, rising electricity demand, higher demand for clean energy, new manufacturing facilities and louder calls to use nuclear power to fight climate change.
New reactors under construction in Europe, the Middle East and Asia are setting up a longer-term supply-demand imbalance of around 10 million pounds to a number far greater within 10 years. That's likely why speculators are getting into the nuclear fuels space and driving uranium prices higher.
Mining valuations don't yet reflect this. That should soon change since this is a market with a much clearer supply/demand outlook than many other commodities, including oil and gold.
Additionally, near-term geopolitical risks, like sanctions against Russia for the conflict with Ukraine, continue to add market speculation about new supply constraints that support upside for uranium prices.
Here at home, the U.S. has been unofficially giving its blessing to the uranium market. Within the past three years the Nuclear Regulatory Commission (NRC) gave Southern Company (SO the green light to build two new nuclear reactors at its existing Vogtle Plant in Waynesboro, Ga. This design was based off Westinghouse's advanced 1,154 megawatt AP1000 reactor design and was the first approval for a new U.S. reactor in 33 years.
Operations of the new Vogtle units No. 3 and No. 4 are expected in 2017 and 2018 respectively, but clearly investors are coming around to the quiet developments now influencing the long-term bull case for uranium.
Technology is also helping to enhance the allure of nuclear power. In fact, the Department of Energy has been endorsing small modular reactors (SMRs), which are typically up to 300 megawatts (MW) in size, through signed memorandums of understanding for construction of SMRs. Beneficiaries of those Funding Opportunity Announcements (FOAs) were NuScale Power, backed by Fluor (FLR - Get Report) , Westinghouse and Babcock & Wilcox (BWC through its mPower program.
In June, NuScale Power opened an operations and engineering center in Charlotte, N.C. The company is actively hiring for the new center and for positions in Oregon. Additionally, this summer, New Jersey Gov. Chris Christie (R) announced his state's approval for a $260 million tax break for Holtec International's SMR manufacturing facility in Camden.
Considering Holtec was not awarded a DOE contract, it says a lot that the state of New Jersey, with a Republican governor who may run for president of the U.S. within two short years, sees opportunity for SMRs.
While safe disposal of nuclear waste remains a huge public issue for the nuclear industry, companies like Kurion are working to minimize nuclear waste. TerraPower, backed by Bill Gates, is also developing a traveling wave reactor (TWR) design which is working on reaching a state of high fuel utilization without the need for enriched uranium or reprocessing.
Japan, yes the same Japan that experienced Fukushima, is expected to soon restart some reactors after safety reviews. There are 50 reactors down and many in the industry have been watching very closely for news on the restart. Cameco mentioned on its recent earnings call that Japanese reactors continue to "edge closer" to restart.
Germany abandoned its nuclear program post-Fukushima, but with rising electricity prices in Europe's top economy, that decision may come back to haunt Chancellor Angela Merkel. Although France is looking to lower its reliance on nuclear, this is more of strategic decision to diversify its energy supply. Therefore saying they are moving away from the power source is a matter of interpretation since they still largely rely on nuclear.
As nuclear power returns to favor in the mainstream energy economy, it bodes well for uranium miners.
At the time of publication, Energy Fuels was a client of the author's consulting firm, Blue Phoenix. John Licata owns share in Energy Fuels and Denison Mines.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates DENISON MINES CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate DENISON MINES CORP (DNN) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself."
You can view the full analysis from the report here: DNN Ratings Report