Back in November we took a close look at the uranium market.
That's because the end of a 20-year milestone agreement was fast approaching...
From 1993 to 2013, the Megatons to Megawatts program saw highly enriched uranium from 20,000 Russian warheads converted into nuclear fuel, supplying American utilities.
At the time I highlighted a uranium investment that could profit from this opportunity, and it's just begun to tap into its upside...
Now we're seeing more bullish developments that point to even bigger gains...
A Major Global Buyer Is Heading Back into the Market
In the wake of Japan's Fukushima disaster, my colleague, Bill Patalon - the Executive Editor of Private Briefing - asked me how I thought the shortfall from offline nuclear power would be compensated.
I told him to expect Japanese liquefied natural gas (LNG) imports to be boosted; it was the most logical option to quickly make up the country's sudden energy shortfall.
And that's exactly what happened. But I knew it would only be temporary.
Since then Japan's witnessed a huge upsurge for LNG, setting a new import record again in 2013. As a group, Japan, South Korea, Taiwan, and China buy 70% of global LNG, occasionally paying up to five times North American prices.
Japan's already doubled its annual LNG spending, eating into exporters' input costs and countering Prime Minister Shinzō Abe's hopes to boost exports through a devalued yen.
So the Japanese are desperately looking for ways to diversify their energy mix...
Before the Fukushima disaster, Japan derived 30% of its electricity from nuclear. Today that has dropped to exactly zero.
So it's not surprising that Abe's successful 2012 election included a pro-nuclear energy policy.
Lately, some suggested that Japan may shy away from nuclear power due to ongoing protests. But, it looks like that's not going to be the case after all.
There's been a recent string of newsbites that have bolstered the pro-nuclear position.
In mid-February Tokyo elected a pro-nuclear governor, Yōichi Masuzoe, reinforcing Abe's position.
Then late last month, the Japanese government released a draft of its final energy policy plan. In it they confirmed that, for the next two decades, nuclear would remain a key base-load source of power. The plan calls for the restart of shuttered reactors, and may even lead to the building of new ones.
But Japan's not the only place where nuclear is likely to come back into the fore.
When the nuclear disaster hit Japan in 2011, a number of nations decided to scale back their nuclear programs. Germany was one of the most prominent, deciding to completely phase out nuclear by 2022.
They unrealistically had pinned their hopes on renewables, which have pushed electricity costs to the second-highest in the EU.
Energy security is a big deal in Western Europe, and it's about to get even bigger.
This Crisis Will Add to Demand... and Opportunity
Thanks to Russia/Ukraine tensions, it would be an understatement to say Western Europe is sleeping a little more uneasily these days. No wonder.
Europe relies on Russia for 40% of its natural gas, half of which flows through Ukraine. And Europe's four largest economies are especially vulnerable, relying heavily on Russian gas: Germany at 36%, France at 15%, Italy at 27%, and the UK at 25%. They pay double the price levels we do in North America.
I don't think it will take too long before practicality sets in, and Europeans come around to Japan's view of nuclear power. In fact, Germany already imports significant quantities of its electricity from France - which generates it from nuclear power.
Through all of this, uranium prices have remained low. But that may be changing... very soon.
As I said back in November, the rest of the world is forging ahead with nuclear power regardless of perceived hurdles. There are 71 new reactors under construction, and 173 are on order or in planning stages.
Any oversupply of uranium from the shutdown of Japanese reactors is being worked through, and mine supply is getting thinner by the day.
Paladin Energy Ltd. (TSE: PDN) recently announced it would suspend its 3 million pounds/year U3O8 KM mine in Malawi, Africa. This news comes on the heels of a number of other suspensions, cancellations, or delays by producers like Areva SA (EPA: AREVA), Energy Resources of Australia Ltd. (ASX: ERA), and Russia's AtomRedMetZoloto.
Complicating matters, Russia looks set to establish a commanding position not only in natural gas, but in the nuclear space as well.
South Africa has just inked a deal with Russian state-owned nuclear power company Rosatom. Under the agreement, Rosatom will build eight new reactors and supply the nuclear fuel needed. That will boost South African nuclear power capacity from 1.8 gigawatts to 11.4 gigawatts by 2029.
But Rosatom has been aggressively making similar deals with other nations, including Turkey, Finland, the UK, and yes... even Ukraine.
All this swelling demand for nuclear fuel is going to manifest itself in the form of higher uranium prices. It has to.
Soros Nearly Doubled His Bet on Uranium... in One Quarter
Anyone who bought Uranium Participation Corp. (TSE: U) when I highlighted it back in November is sitting on a tidy 8% gain already.
In the last two months, other encouraging signs have materialized signaling that the uranium bull is back.
Uranium Participation Corp. recently raised $50 million to buy more physical uranium in the market. Clearly, they see the current spot price around $35 as temporarily depressed and certain to rise, especially given that it costs upward of $80/lb. to mine the stuff.
Another uranium play that's showing promising action of late is Cameco Corp. (NYSE: CCJ), the largest publicly traded uranium producer on the planet.
On the day following Japan's recent national energy policy announcement, CCJ moved up 8.2%. The next day, Cameco climbed another 4.7%. Since the news, the stock is up a total 17% in just two weeks. And George Soros now owns $55.4 million of Cameco stock after boosting his holdings by 42% last quarter.
My approach for Real Asset Returns readers is to identify global trends before they gain mainstream recognition. That trigger allows us to position ourselves for maximum gains as these trends play out.
The uranium bears are exhausted. Market forces are beginning to take effect as the cure for low prices is low prices.
After nearly three years of correction and consolidation, uranium has all the hallmarks of a sector poised to break out.
And I expect the plays I've highlighted above to profit handsomely as uranium begins to head much higher...