David Wang: We think uranium offers a second chance at the China growth story. While most industrial commodities like coal, copper, and iron ore have already experienced the China growth over past decade--the country makes up more than 50% of global demand for those commodities--China makes up a mere 5% to 10% of global uranium demand.
Going forward, we think that's set to change. China has a huge fleet of nuclear reactors set to come online as the country is trying to wean itself off of polluting coal plants and focus more on other sources of energy. We think that nuclear is set to play a key role in replacing coal's baseload-generation characteristics. If you combine that with new builds in India, Russia, Korea, as well as restarts of Japanese reactors, we think that global uranium demand is set to increase 40% over the next decade.
We think supply will really struggle to keep up with this rapid demand growth. Low prices over the past couple of years have left the project cupboard sparse. Combining supply and demand, we see a cumulative deficit emerging. In order to plug this gap, we think prices will need to increase over 50% to $75 a pound.
Our favorite way to play this is blue-chip miner Cameco (CCJ). It's a narrow-moat company, and we think that it's trading at a 25% discount to our fair value estimate. The company is one of the largest miners in the world as well as one of the lowest-cost producers. We think it will be a great way to benefit from higher uranium prices.