March of 2011 saw the Fukushima tragedy in Japan, in which natural disasters contributed to a nuclear meltdown. In this article I would like to take a look at the impact of the Fukushima event, the response of the nuclear power industry, and points investors may benefit from considering.
Impact on the Industry
The Fukushima event sent the nuclear industry reeling, and prices went tumbling. Below is a chart of Cameco Corporation (CCJ), one of my favorite uranium miners (see previous coverage). Uranium is the fuel for most nuclear reactors, and investing in uranium remains my favorite way of investing in the growth of the nuclear power industry.
As for investing in new nuclear reactors, countries have taken the following measures:
- Germany previously stated it would shut down all reactors by 2022
- Italy also voted to stop usage of nuclear power
- Switzerland plans to phase out nuclear power by 2034
However, by and large, plans for nuclear power continue to grow. The two main countries to watch for the future of nuclear are China and India. China continues to invest aggressively in nuclear power, and India plans a fourteen-fold increase in nuclear power usage. This is especially important to observe if we accept, as I do, that a West to East wealth transfer is occurring. The actions of China and its satellite economies are the "smart money" that are pushing demand and creating trends in the current environment for the world's financial markets.
Impact on Industry Financing
Based on the information presented in this article thus far, I believe a case can be made that Fukushima has not significantly impacted demand, in the sense that the strong hands driving the market - the emerging wealth in Asia - is still committed to nuclear power. In spite of this, share prices for companies in the nuclear power sector are still far below their pre-Fukushima levels. This suggests a buying opportunity, and so it is worth noting that there has been a fair amount of acquisitions in the nuclear power industry. This past week, for instance, saw the acquisition of Denison Mines (DNN) by Energy Fuels, an event that will position Energy Fuels (EFRFF.PK) as the largest producer of uranium in the U.S. This acquisition, as well as others in the nuclear industry by firms like Cameco and Uranium Energy Corporation (UEC), suggest industry participants are planning for ongoing demand. If the industry was in decline, we'd see more things like downsizing rather than acquisitions by established firms.
The Fukushima event was clearly a tragedy, as any destructive event is, but the market reaction has been excessive and irrational. I believe a clear-headed look at the facts of the situation makes nuclear power one of best investment opportunities out there, perhaps akin to what gold was back in 2001. I look forward to continuing to build a position in the nuclear power industry so long as prices remain well below their pre-Fukushima levels. I prefer single stock selection, specifically amongst uranium miners, although ETFs that may be worth considering for those looking to play the sector are (URA) and (NUCL). Other investment opportunities I believe will rally largely because of ongoing investment in nuclear power are graphite miners and rare earth miners. Both graphite and rare earths are used in the production and operation of nuclear power reactors.
Outside of investing in miners that bring resources essential to nuclear power, the one opportunity I'm waiting for is to see which firm can bring a small modular reactor to the market first. Babcock Wilcox (BWC) is working on this - see my previous write-up for a full review. However, I believe the ideal way for a small modular reactor to come to the market is not through the U.S., which is already invested in capital-intensive conventional nuclear power plants, but rather through economies that cannot afford the high upfront costs that larger nuclear power plant requires. New entrants should focus on starting with a customer base that established industry incumbents currently cannot reach, and expanding from there. A small modular nuclear reactor that can work with solar power in places where electricity remains scarce is one of the most exciting opportunities in the market today, in my opinion. There are companies in the private sector that are working on this, such as TerraPower and NuScale; I believe these companies are worth watching closely for those who are interested in investing in the transition to a world of nuclear power.