Nuclear returns – MoneyWeek

Despiteenvironmentalistsopposition,alltheevidencesuggeststhattheworldmustonceagaingobackexploitinguranium-basedpower。

MoneyWeekinvestigatesRightnow,saysRobertMitchellofAditCapitalinTheGloom,DoomandBoomReport,carbonisaccumulatingintheatmosphereatarateofthreebilliontonsperyear。

Youmaythinkthisdoesn’tmatter,that“wewillallpartthisearthfromproblemsutterlyunrelated”toglobalwarming。

Oryoumaysimplythinkitdoesn’texist。

Butyoucan’tgetawayfromtheotherconsequenceofourdependenceonfossilfuels:theirpricesjustkeeponrising。

Theoilpricehasmorethandoubledinthelastfewyearsasdemandfromallovertheworld,particularlyfromChina,hassoaredbeyondeveryone’sexpectations。

Andthepriceofcoalisalsorisingatarapidclip,thankstothefactthattheaverageUSconsumergetsthroughaboutfourtonsofcoaleveryyearandthatChineseusageisheadingthatwaytoo。

That’sanumberthatisn’tgoingtogodown,saysPeterHuberinTheCityJournal。

Why?

Becausecoaliscrucialtoourelectricitysupply。

Morethan38%oftheworld’selectricitycomesfromcoalandthedemandforelectricityisrisingfastallovertheworld。

Itisexpectedtorise20%-30%intheUSoverthenexttenyearsandatmuchfasterratesinthedevelopingworld(Chineseelectricityconsumptionhasdoubledoverthelastdecade)。

Thefastest-growingpartsoftheglobaleconomyITandtelecomsdependentirelyonelectricityforfuel,andit’stakingoverthethermalsectortoo:whereyouusedtoseeagascookerinalmosteveryWesternkitchen,todayyouseeamicrowave。

Thesameistrueinmanufacturinghugenumbersoffurnaces,dryers,weldersandkilnsarebeingreplacedbyelectricalternatives。

Eventhetransportarenaisbecomingincreasinglyelectric。

Modern,high-speedtrainsarebeingdesignedtorunonelectricityandhybridcarsareincreasinginpopularity。

Everythingaboutlivinginamoderneconomydependsonbeingabletopluginandpowerup。

Thismeansweneedtogeneratemoreelectricity,fast。

Chinaisalreadysufferingfromseriouselectricityshortagesthatcouldcrippleitseconomy(lastyeartherewere175,000blackouts)andoneineverythreepeopleintheworldhavenoaccesstoelectricity。

Sohowdoweproducemoreelectricity?

Notwithoil,saysDanDenninginhisnewbookTheBullHunter。

Youcan,ofcourse,useoiltomakeelectricity,soitis“stillpartofthestory”。

Butasthechartonpage22shows,usingoilforelectricitygenerationpeakedin1980:asthepriceofoilrises,“youcanburnjustaboutanythingelseforcheaperelectricity”。

Nextupiscoal:over95%ofthedemandforcoaloverthenextthreedecadeswillcomefromtheelectricitymarket。

But“coalbyitselfisnottheanswer”。

Why?

Becauseitisdirty。

WhenEnglandwasthecentreoftheIndustrialRevolutionandcoalfuelledthesteamengines,“theskywasblackwithsoot”。

ThisishappeningalloveragaininChina,whereacidrainisahugeproblemandlayersofsmogblanketthestreetsineverymajorcity。

Thereareexcitingnewpossibilitiesopeningupintheformofcleanliquidcoal,butwhilethetechnologyforthisissortedout,westillneedsomethingelse。

Butwhat?

Environmentalistslovetopointtosolarcells,windmillsandhydrogen,but“norealisticcombinationofthosethreewillevenvaguelyapproximatetotheincrementaltrillionsofkilowatthoursofelectricalpowerthecitizensofEarthwillsoonrequest”,saysMitchell。

Ifyouwantedtopowereveryhouse,officeandstreetlightinLondon,youwouldneedtocoveranareatwicethesizewithsolarpanels(anditwouldhavetobesomewheresunnysonotinLondon)。

Thegoodnewsisthatinsteadofdoingthis,youcouldbuildacoupleofnuclearreactorsandyou’dhaveanendlesssupplyofclean,cheapenergy。

Abundleofenricheduranium-fuelrodsaboutthesamesizeasatwo-bedroomflatinBrixtonwouldpowerthewholeofLondonformorethanayear。

Manythinkthattheageofnuclearpowerendedlongago,saysDenning。

They’rewrong。

Thirty-sevencountriesaroundtheworld,theUSincluded,currentlyusenuclearpower。

Franceisfamouslythemostdependent(77%ofitsjuicecomesfromnuclearpower),buttheUShas104nuclearplantsoperatingatalmostfullcapacityandtheUKhas35,whichbetweenthemreliablyprovide20%ofthecountry’selectricity。

What’smore,“overthelastfourdecadesnuclearpowerhasbeenthefastest-growingmajorsourceofelectricityintheworld”。

Andthatisgoingtocontinue。

GermanyandSwitzerlandjustextendedleasesoncurrentplants;theUKhasjustputitsnuclearplanbackonthetable(“MyGovernmentwillgivethego-aheadtobuildingnewnuclearpowerstations,”saidtheQueenattheopeningofparliamentthisweekseetheboxonpage20);Japangets39%ofitsenergyfromnuclearpowerandisplanningtoexpandthat;Indiahasnineplantsunderproductionandanother24planned;andChinawillneedto“buildatleasttworeactorsayeareverysingleyearforthenext15years”inordereventobegintomeetitsneeds。

Finally,intheUS,theEnergySecretary,SamuelBodmanannouncedthisweekthatthefirstnewnuclear-powerplantinmorethantwodecadescouldbecompletedby2014。

Sowhatdoesthismeanforinvestors?

asksDougCaseyofCaseyResearch。

Thesalientpointis“oneofsupplyanddemand”。

Currently,minesaroundtheworldareproducingabout92millionpoundsofuraniumayear,whichamountstojustoverhalfofthe175-million-poundannualdemandfromnuclear-powerplants。

Weareusingmorethanweareproducing,whichhascreateda“classicsupply/demandsqueeze”:thepriceofuraniumhasrisenmorethanthree-foldoverthelastfouryears。

Thequestionnowiswhetherthiswillcontinueornot。

Let’slookatthesupplyside。

Thefirstthingtobearinmindhereisthatwhilethereisnoarguingthatthereiscurrentlyashortfall,theideathattheworlditselfisshortofuranium“isabsurdingeologicalterms”,saysCasey。

Uraniumisnotonlyrelativelyeasytomine,butisalsomorecommonthaneventinorzinc。

Becauseofthisabundance,therisinguraniumpricehas,andwillcontinueto,bringmoredepositsoutofthewoodwork。

Agreatmanyareasthatitwasn’tworthmininginwhenuraniumwassellingat$7/lblookmoreattractiveatthecurrent$23。

50/lbandoveralluraniumproducersandexplorerscurrentlyholdover2。

5billionpoundsofknownU3O8reserves,theoreticallyenoughtosatisfythecurrentmarketformorethanadecade。

Sohowmuchofthisreservewillcometomarketinthenearfutureandhowwillthisaffecttheuraniumprice?

Themostimmediatenewproductiontocomeonlineislikelytobefromexistingminestappingintohigh-gradeore,saysCasey。

CamecohasalreadyappliedforalicensetoincreaseoutputfromitsexistingMcArthurRiverandKeyLakefacilitiesbyupto3。

3millionpoundsannually,forexample,andislookingtoincreaseproductionfromvariousotherminesaswell。

ButonewildcardinuraniummarketsistheproductioncomingfromcentralAsiannations,mostnotablyKazakhstan,whichhostsanestimated15%ofworldreserves,orsome1。

4billionpoundsof‘yellowcake’。

Thenationiscurrentlytheworld’sthird-largestproducer,withanoutputof7。

3millionpoundsin2003,butthenationaluraniumproducer,KazAtomProm,hasannouncedthatitintendstoincreaseproductionfivefoldoverthenextdecade。

Africamayalsoyieldasmallamountofnewsupplyoverthenextfewyears。

Finally,thereistheUS,whereslightincreasesinuraniumproductioncouldariseinthenearterm,bothfromexpansionsofproducingoperationsandnewminestartups。

AfurtherissueissecondaryU3O8。

Thisincludesuraniumobtainedfromtherecyclingofnuclearweapons,utilityandsupplierstockpilesandothersources,suchasbreedernuclearreactors。

Suchsourceshavebeenfeedingthenuclearindustryforthepast20years,makingupfortheshortfallinprimarymineproduction。

Sohowmuchstockpileduraniumisleft?

Verylittle。

In2003,theEnergyInformationAdministrationreportedthatstockshaddroppedto85。

2millionpounds。

Ofthis,45。

7millionpoundswereheldbynuclearplants,withtheremaining39。

5millionpoundsinthehandsofsupplyagenciesonlyafewyearssupplyatcurrentburnrates。

Theupshotonthesupplyfront,saysCasey,ifyouaddupnewprojectscomingonstream,isthatannualsupplyislikelytoexpandbyaround64millionpoundsayearoverthenextfewyears。

Assumingthatnocurrenturaniumminesbecomedepleted(whichtheywill)andthattheworldseesnonewnuclearplantsbuilt(whichitwill),theincreasedsupplywouldstillfallshortofcurrentdemandbymorethan18millionpounds。

Iftheworld’snationsbuildallthereactorstheysaytheywill,thesupplygapmayevenincrease。

Allthissuggeststheuraniummarketisn’tinimmediatedangerofbeingswampedbyincreasedproduction。

Ifmarketforcesareallowedtoactfreely,priceswillriseforthenextseveralyearsuntiltheyreachhighenoughlevelstounlocktheEarth’sreservesoflow-gradeuranium。

Inthemeantime,well-positionedinvestorsintheuraniumsectorcansitbackandenjoytheride。

Seetheboxonpage21forthebestsharestobuy。

DougCaseyischairmanofCaseyResearch,LLC,andauthorofCrisisInvesting。

HeisalsoeditorandpublisherofCaseyresearch。

comandtheInternationalSpeculator。

Foralimitedtime,MoneyWeeksubscriberscantakea30-daytrialsubscriptiontoInternationalSpeculatorabsolutelyfree。

Fordetails,visitwww。

caseyresearch。

com。

DanDenningiseditorofStrategicInvestmentandauthorofTheBullHunter,whichisreleasedthismonthbyJohnWileySons。

Tofindoutmoreaboutcommoditiesandtheenergysector,visitwww。

energyinvestor。

co。

ukFourhoturaniumproducersCamecoistheworld’sleadinguraniumproducer(orthe“SaudiArabiaofuranium”,saysRobertMitchellofAditCapital,whoisaholderoftheshares)andthusalong-termholdforuraniuminvestors。

Butasmuchofitssalesfor2005and2006areunderfixed-pricecontract,intheshorttermitwon’tbenefitmuchfromrisingprices。

Africamayyieldsomenewsupplyoverthenextfewyears,saysDougCasey,themostimmediateislikelytobefromPaladinResources’LangerHeinrichdepositinNamibia。

Theproperty,acquiredbyPaladinin2002,isthoughttocontainsome72。

8millionpoundsofU3O8。

Paladiniscompletingabankablefeasibilitystudy,withproductionexpectedtobegininlate2006atarateof2。

5millionpoundsperyear。

Severalotherprojectswillfollowsoonafter。

InvestorswhogotintothestockwhenCaseyfirsttippeditwillhavemadeover1,412%since,butwiththefirmlineduptobeoneofthefirstoutofthedoorwithnewU308productionmeans,“theshowisnotyetover”。

Onesourceofincreaseduraniumsupplyinthenear-tomid-termcouldbeAustralia’sOlympicDamdeposit,whichalonehostsmorethanaquarteroftheworld’sknownuraniumresources,saysCasey。

OwnersWMCResourcescurrentlyproduceabout10millionpoundsannuallyfromOlympicDam,butareconductingdrillingaimedatdelineatingfurtherresourcesandrampingupoutputtonear30millionannualpounds。

Thecompanyistargetingthefullexpansiontobecompletedby2010-2014。

Assumingagradualstep-up,WMCcouldbeadding2。

5millionpoundsofoutputperyear。

USEC(USU)isagamble,saysMitchell。

ItwasoneofthebiggestgainersontheNYSEinthefirstquarter(+68%)andistheonlydomesticenricherofuraniuminAmerica。

However,itisa“verycontroversialcompany”andrequires$1。

5bninfinancing。

Ifitworks,“itcouldbeahugewinnerevenfromhere。



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