Uranium Finally Wins Favor with Greenies

Talk about a makeover. Nuclear power, once an environmentalist's worst nightmare, has transformed into the darling of greenies everywhere, with Greenpeace co-founder Patrick Moore even publicly proclaiming his faith in fission.

Why the change of heart? We've covered it here before, but essentially, in the quest for alternative energy sources, nuclear power is the obvious choice, a giant among wimps. Its technology is well-understood, with controllable production that doesn't depend on cooperating weather patterns or agricultural crops. Add that to the fact that reactors don't produce any greenhouse gas emissions, and suddenly, nuclear looks pretty sweet.

But you can't have nuclear power without fuel - a fact that has sent uranium prices skyward in recent years.

Uranium's had an exciting millennium so far. In 2003, it began a parabolic rise, with its spot price more than quadrupling from 2004 to 2007. Eventually prices hit $138/lb last June, before pulling back; today, it bounces from $75 to $95, about its price in the 1970s when adjusted for inflation. (See the two-year price of uranium here.)

Part of that's due to a massive shortage of ready-to-use uranium; global demand for the mineral already outstrips supply by 139%. And there's no end in sight. The world's 439 operating reactors aren't nearly enough to satisfy global power needs, so 35 more are under construction - with another 319 either in planning or proposal stages.

As those reactors come online, they'll need even more uranium. But production has been slow to rev up after a lull following the Cold War, and new mines haven't opened quickly enough to keep pace with demand. For the foreseeable future, the shortage will continue.

More-Predictable Demand

What makes uranium especially interesting is that demand for the mineral is far more predictable than other metals, since uranium's price is really only a small factor in calculating total nuclear power costs. Once operational, reactors are very cost-effective to keep fueled at high capacity - just 26% of what it costs to maintain an oil or coal-fueled plant; meaning if electricity demand ever did decline - highly unlikely - utilities would be more likely to cut back production at plants with higher fuel costs, like those fossil fuel generators, than nuclear plants. So uranium demand depends mostly on operational reactors, and less on economic fluctuations.

As these new power plants start producing, uranium prices will probably ease a little in the short term. But the world's insatiable thirst for electricity - especially in China - will keep uranium going up long term.

You can now get in on uranium by purchasing yellowcake futures. In 2007, NYMEX partnered with the Ux Company (which runs the Ux U3O8 index, a weekly uranium price tracker) to start offering monthly contracts of 250 lbs of yellowcake. There have also been rumblings recently about possibly introducing physical uranium contracts on the London Metals Exchange.

Still, the traditional way to access uranium is to go to the source: the mining companies. These include the big guys like BHP Billiton (BHP) and Rio Tinto (RTP), as well as several mid-tier and junior miners like Uranium One (UUU) and Denison Mines (DML).

Another big name is Cameco (CCJ), the world's largest uranium producer, which furnishes 20% of all mined uranium. The company operates the McArthur River Mine - the planet's biggest deposit of high-grade uranium - and the Cigar Lake Mine, its largest undeveloped deposit. And if that wasn't enough, Cameco also runs the Key Lake and Rabbit Lake Mills, the world's largest and second-largest uranium milling operations, respectively.

Cameco's 100-day volatility of 44% isn't atypical for a single stock, but it's a wild ride compared with the S&P GSCI's 28%. Still, Cameco looks good; it's definitely profitable, and sits on millions of pounds of proven uranium reserves.

Plus, the company still struggles with production setbacks from a 2006 flood of its Cigar Lake Mine, which will probably affect the company's earnings for the next few years. This now makes it a great time to buy for long investors: With uranium demand ever growing, once Cameco recovers, it should move back up in a big way.

Another pure-play is United States Enrichment Corporation (USU). The company supplies low-enriched uranium to commercial nuclear power plants, through the U.S.' only enrichment facility and contract with Russia to reclaim uranium from old Soviet-era weaponry. But a major technology overhaul called the American Centrifuge Project - which was supposed to increase USEC's efficiency - is running well behind schedule and over budget.

One last note: Fans of uranium should keep a close watch on thorium prices. Thorium, which can also be used as nuclear fuel, is safer, cleaner, more abundant and more efficient as a fuel source than uranium, and many experts suspect the mineral may be the next big step in nuclear power. So depending on how long you want to go, now could be an excellent time to get into thorium companies, like Thorium Power (THPW).

Links

World Nuclear Association

The Ux Company

NYMEX: Uranium futures

Cameco

The United States Enrichment Corporation

Comments

[rzld36]

I agree with you. Great long term investments are out for nuclear stocks when you look at the trends from a macro view. I like CCJ and the ETF NLR. Buy some and put it away. You should be very happy in with the returns long term.

[petethexman]

I can't say, as the author did so enthusiastically -- that "greenies" are embracing nuclear power. I think you'd find the vast majority of environmentalists, environmental groups, and liberal social/public interst groups in general still opposed to it. For one thing, it is enormously capital-intensive, meaning that power companies and utilities, already poorly regulated (um, remember Enron, anyone?) by governmental agencies, would still control prices. For another, long-term storage of radioactive wastes is still an unresolved problem. Radioactive waste is also a concern regarding terrorist groups -- make more radioactive waste, and they will find a way to get it, whether it be from North Korea, China, Iran, or some French- or GE-owned power plant.

As a life-long environmental activist, I do have to admit to having second thoughts. I don't see nuclear fission ever being anything but a stop-gap source of power, and by "stop-gap," I'm talking 50-75 years, and for that short-term, we may have to rely on increased nuclear power in lieu of oil or dirty coal (the "clean coal" of CNN TV ads being a myth). Eventually, if a nuclear power-based technology were to be the primary source of power production, then nuclear fusion plants would have to be the way to go.

If Avery Lovins is reading this article (and this post), he's probably shuddering and shaking with anger, and for good reason. Power production does NOT have to be in the hands of huge corporations or "Axis of Evil" nations; the technology exists now, and is becoming ever more efficient and economical -- to have one's home powered solely by solar panels, to store excess electricity in increasingly larger capacity and more affordable batteries, and even have excess electricity beyond that put into the grid, as well as having hybrid or hydrogen fuel-cell-powered autos If we were to go into nuclear power in a big way, to provide power for homes and to recharge electric vehicles -- the government would have to get into it in a big way to subsidize it, so that the costs of the power is affordable for everyone, so that nuclear wastes can be stored or possibly reduced to low-level wastes, and so that we don't replace one cartel for another.

Self-contained water and sewage treatment systems for individual homes are available for under $10,000, and as interest in renewable sources becomes more compelling and more necessary, they will become far more common. It is even possible to dig down 75 feet below a proposed home's foundation, install propylene glycol-filled tubes, to use a very small-scale version of geothermal heat exchange to power an individual home. Think of the construction jobs, think of the savings in fossil fuels and reduction of pollution -- all for something that can be part of every home built in America, right now. The biggest question is, why NOT?

In 1980, I ran for a seat on the Chula Vista (San Diego County, California) city council on a platform of requiring water-conserving plumbing and energy-efficient homes be built, including but not limited to solar panels, photovoltaic cells, low-flow shower heads, water-conserving toilet fixtures, and the like. The city, which has more than doubled its population since then, could EASILY have required those features in homes (which already were selling for $500,000 ANYWAY -- what's $5 or $10,000 more to do things right???) and could have been a kodel for doing development the right way almost 30 years ago. Even in 1980, my positions seemed woefully late. There is no reason to have allowed millions of homes to be built in southern California without requiring them to have solar panels or water-conserving devices. The one country in the world where solar power IS becoming a way of life is in Germany, hardly perceived as a sunny subtropical paradise.

What is required, of course, is political leaders to have the cojones to require solar panels in new homes, then in major remodels. We need a Congress and a President to require fuel-efficient vehicles. We need a nation of leaders, and if the leaders can't lead, then we need an educated and demanding populace to INSIST on it.

I became irate when I heard a recent speech in Flint, Michigan by Senator Barack Obama. If ever there was a city in America where working-class people had been screwed by auto companies, it is Flint, Michigan (which gave rise to Michael Moore, for better or worse). Senator Obama could have clinched Michigan's 17 electoral votes by saying something like this: "We haven't raised CAFE standards since the mid-1970s, and we're in our third energy crisis since then. If auto companies had retooled and MADE fuel-efficient cars, the leading car sales in America would have been GM or Ford instead of Toyota. Japanese and German car manufacturers saw the writing on the wall and captured the market share -- something AMERICAN companies did successfully, when our economy was the model for world economic activity, until they became greedy. If they had built fuel-efficient cars, we'd still HAVE auto manufacturing jobs in Flint, Michigan instead of Mexico or Japan or Germany. I will push Congress to raise fuel-efficiency standards, saving money, lowering our import of oil from Islamofascist countries like Saudi Arabia, improving our trade deficit, and saving good-salary jobs in America for Americans."

Well, "Islamofascist&qu... might be a tad strong for politicians to say, but you get my point.

Frankly, John McCain could say the same thing. It's COMMON SENSE. But American industry will do NOTHING unless forced to. Merely requiring fuel-efficient vehicles doesn't make them appear as if by magic, of course, but requiring it and sticking to it, which the California Air Resources Board has done for decades, HAS forced automakers to either produce such a vehicle or go out of business ( the California ARB is important because California came up with its own Clean Air Act before one was enacted by Congress, so California -- and other states that choose to follow California's standards -- are allowed to have standards more stringent that federal standards. And since California has historically been about 12% of the market, the Big Three had to make models that met these standards . . . but sold them only in California).

Question: What is happening to Ford and GM as we speak? ARe they cutting evern more jobs? Are they discontinuing gas-hog vehicles? In the face of becoming dinosaurs, even the Big Three have seen the light but COULD have done so over 30 years ago.

It is time the American people quit swallowing the lies of a very few corporate officials and far-right-wing politicians -- do the right thing; do the smart thing. Reducing our import of more and more expensive foreign oil strengthens the American dollar, keeps good jobs here, builds and strengthens our economy, reduces pollution and resultant costly clean-up, from localized air and water pollution to global warming, and makes the quality of life for all of us better. The fact that it has taken decades to get a grip -- and having to endure years of ridicule of environmentalists as "tree-huggers,&qu... alarmists, or wackos -- is something that can't be dwelled upon. We have to start doing it right, and right NOW.

All of the above points only go to prove what environmentalists have said for 40 years -- that the words "economy" and "ecology" have the same root word origin. Being good for the environment is unquestionably good for the economy, as it always has been. Those companies that realize that truth will succeed; those that don't, will not. And isn't that the very essence of a free-market economy?