Nuclear Power's Second Coming Will Lead to a Uranium Boom

No one can ignore the push in the United States and elsewhere across the globe to move away from a dependence on fossil fuels and into a more environmentally friendly, low carbon emission means of producing energy, and in particular electricity. Feeling this push, politicians are moving to formulate plans by which electricity can be produced in an environmentally sound manner.

Despite the recent advancements in clean coal technology, coal fired power plants are still targeted as public enemy number one by the environmental movement. The United States, however, is still very much dependent upon coal as its primary supplier of electricity and no other environmentally friendly sources have proven that they are capable of supplying even close to as much energy as coal at a price that is cost feasible. But there is perhaps an exception that is becoming more cost feasible. That is nuclear power.

American politicians seemed to have turned their attention to nuclear power to help produce emission free electricity. Presidential candidate John McCain recently stated that he would like to see 45 new nuclear facilities built by the year 2030 and pledged 2 billion taxpayer dollars a year to help make that a reality. It is very likely that a proposal such as this will come to fruition no matter which party is elected and having funds like this available make nuclear power a cost feasible method of producing emission free electricity.

The first thought that investors will have in looking to play this coming boom in nuclear power will be to buy up stock in the owner/operators of the nuclear plants such as companies like NRG Energy (NRG). The issue with this is that even with such substantial federal subsidies in the pipeline for building these new plants it is likely that the nuclear power companies will still have to make a substantial initial investment in each reactor they build because of the hefty up front cost. Furthermore, with electricity being a regulated product, the profits that these companies can make will be capped.

The best way to play the future nuclear boom is to look to the most integral suppliers for the production of nuclear power: the uranium producers. The uranium producers' stocks right now have bargain basement prices and they stand to profit immensely in the coming years as nuclear production begins to ramp up.

The recent decline in prices of uranium has hammered the stock prices of uranium producers such as Uranium Resources Inc. (URRE) and Denison Mines Corporation (DNN). There are many factors to blame for the recent decline in prices and the first is that the 2006-2007 run-up in uranium prices was caused by a worldwide surge in demand and also by speculators frantically buying uranium in anticipation of a surge in nuclear capacity, only to sell when they realized that the surge was still years off. Though the surge is still a few years away, the decline in uranium prices has created the perfect opportunity for the long term investor to swoop in and pick up some shares in these uranium producers at extremely low prices.

The worldwide demand for uranium hasn't changed too much over the years as year after year new production fails to meet worldwide demand. According to the Energy Watch Group, an organization of scientists that continually research worldwide energy production, the current demand for uranium is 67 kt/year and only 42 kt/year are supplied by new production. The remaining 25 kt is supplied by stockpiles at mines and power plants that were accumulated prior to 1980. The Energy Watch Group estimates that these stockpiles will be exhausted within 10 years and this will leave a tremendous imbalance between supply and demand that the uranium producers will have to step in to fill. Add to this scenario a new rash of federally subsidized nuclear reactors in the United States and the supply and demand imbalance becomes even larger.

The graph below, provided by the Energy Watch Group, shows the availability of yet to be mined uranium reserves. The orange shows reasonably expected reserves which can be extracted at $40.00 per Kt, the yellow area is reasonably expected reserves that can be extracted at $130.00 per Kt, and the light blue area shows inferred reserves that can be extracted at $130.00 per Kt. The black line shows the expected demand for uranium.

 

To give you an extra idea as to how critical the uranium supply situation can be, eleven countries including Germany, The Czech Republic, France, Congo, Gabon, Bulgaria, Tadshikistan, Hungary, Romania, Spain, Portugal and Argentina have already exhausted their domestic uranium resources. Several of these countries rely very heavily upon nuclear power for their electricity production and having no domestic uranium supply means that they must import their entire supply.

The one factor that seems to be keeping prices of uranium stable currently is the aforementioned stockpiles at the mines and power plants. These stockpiles that were created during the uranium mining boom of the 1970s mean that all demand can currently be met at reasonable prices. When these stockpiles do run out is when a worldwide shortage could take effect and give the uranium producers a golden opportunity to bring their products to market at an extremely high price.

For an investor to take advantage of this long term trend, the price seems right to jump in right now. Not only do Uranium Resources Inc. and Denison Mines Corporation look like they potentially stand to benefit from the second coming of nuclear power but so do companies such as Cameco Corporation (CCJ), which is also a player in the gold market, and Uranerz Energy Corporation (URZ),  a smaller company that is engaged in the exploration stage of the uranium market rather than the actual mining.

The bottom line is that nuclear power is going to make a comeback in the United States and if you add more demand in the United States to an already present (but masked by excessive stockpiles) lack of supply then the answer inevitably will be higher prices for uranium. Higher prices for uranium will make the uranium producers money along with any investor prudent enough to pick up shares in their stock while they are at bargain prices.

Disclosure: None

Note: the full report of the Energy Watch Group including many facts and figures mentioned in the above article can be found at: http://www.energywatchgroup.org/fileadmin/global/pdf/EWG_Uraniumreport_12

Comments

[normthefedup:]

IngleFox, you're a smart man. With an engineering background, I've been extolling the attributes of nuclear power since the first oil shock in the early 70's. But fear of nuclear power from the "unwashed masses" has left us in the mess we're in now. More people with your foresight in the past "government has done nothing" 40 years would have us thumbing our noses at the rest of the world today. But I'm beating a VERY dead horse. Kudos to you. Again, smart man.

2008 Jul 09 08:51 AM

[Zenfar:]

Norm keep beating the horse, because it isn't the 70's anymore. Gone are the days when one stupid "China Syndrome" movie can keep us from having the ability to impact world energy prices. There is a whole movement of younger environmentalist that surprise actually care about the environment and have a brain, they will support the nuke build out.

2008 Jul 09 09:13 AM

[Edward Janeck:]

I think nuclear power is a good investment long-term, but with not help our energy use for more thean 10 years.

2008 Jul 09 10:02 AM

[zenalgorithm:]

What about peak uranium? It would be dumb for the U.S. to move from one scarce energy resource to an even scarcer one. I think it's OK to build a small handful of nuclear plants, but 100-200 new plants would just set up another energy crisis in 50-70 years.

2008 Jul 09 10:26 AM

[bobbbyc:]

Recent US contract to Areva to convert 60 tons of plutonium into fuel for atomic power plants, sales of Russian weapons grade uranium for nuclear fuel, and recycling of spent fuel rods in European reactors into reusable fuel rods are also factors that limit prices miners can expect in the future for their yellowcake.

2008 Jul 09 11:04 AM

[DougM:]

While I generally agree with your position, I would quibble about coal plants being public enemy number one for enviro activists. They oppose nuclear plants with equal fervor. It's just that they've all come to think they won that battle for good back in the late 70s, and are now dismayed to see their own arguments about depletion and emissions coming back to bite them. Indeed, from what I can see they're pretty much opposed to everything, even nat gas (they oppose LNG projects and more domestic production in off-limits areas). Eventually the "unwashed masses" will see through their position when it becomes evident that conservation can't take us to zero, and intermittent renewables can't provide baseload or dispatchable power to the grid (not to mention needing huge amounts of land and long transmission lines through sensitive areas). Germans are already coming to grips with this reality.

2008 Jul 09 11:23 AM

[GMiki1:]

We need everything for energy--nat gas, clean coal (see Silverado Gold, which has a clean coal demo in Mississippi, with state participation), and uranium. The Russian stuff is about used up, but we now have a large shipment of yellowcake from Iraq. However, uranium as fuel is just about in shortage--which won't be the case in a few years as many juniors are developing mines. I hold URRE--I doubled my money and sold, but still hold some--I hold Bayswater (this is a very, very savvy company)--and Pele Mountain. At some point these are going to rise dramatically as will all the mining juniors in various materials. Look at some of the Canadian energy companies such as DEJ, which has both nat gas and uranium.

2008 Jul 09 11:39 AM

[User 223819:]

I still worry that we have not resolved the nuclear waste issue..... Can you imagine any method that can keep the waste safe for the next 10,000 years, the approximate 1/2 life? The not-in-my-backyard mentality has resulted in this issue not being resolved yet, and will only get worse in years to come.

2008 Jul 09 02:44 PM

[fireball:]

gmiki i thought the russian supply was about gone too. i think bhp is sitting on a huge stockpile of yellcake waiting for an o.k. to ship it to china. i do not know if that is true. i will look at bayswater. does anyone have an opinion on silex? i have been sitting on shares for quite some time. it is sometimes great and sometimes terrible. i hope as their enrichment facility (ge ccj and a japanese company are building) nears completion it will do well.

2008 Jul 09 02:53 PM

[arawak:]

Any thoughts on Uranium1? I know they have had a back track record of late but they seem to be operationally focused and are getting back on track. The stock is at 52-wk low right now. UUU.tsx

2008 Jul 09 03:08 PM

[fireball:]

arawak i got burned on it. i am looking elsewhere now. this site brought dnn to my attention. i picked up shares of sgr while they were down yesterday. i think they may do well on the plant buildout.

2008 Jul 09 03:28 PM

[U3O8Insighter:]

DNN's got some potential, for sure. Check out UEX, also. CCJ bought a huge chunk of that a year or two ago. I've got a decent position w/ CCJ myself. Looking around/watching a few of these juniors. Also, check out the miners with "milling facilities." You know they'll have a good head start when the ball finally drops.

2008 Jul 09 03:55 PM

[fireball:]

u308 thanx. i will. i had a position in ccj a few months back. i made a little. hate to admit it but i lost my nerve. looks like sgr is doing well in the after market.

2008 Jul 09 04:28 PM

[DanDaMan:]

Zenalgorithm, User####; 2 words : Thorium Power. Look it up :)

2008 Jul 09 06:29 PM

[Think-About-It:]

What does France do with all its nuclear waste?

Does anyone have a good read on the amount of Uranium stock piles? Is it even possible to estimate? The author says 10 years to deplete current stock piles but I think that is a baseless guess.

I'm leaning towards buying "U" on the Toronto exchange rather than gambling on a couple of companies in the Nuclear sector but I'd feel a whole lot more comfortable if the spot price was $40 rather than $60 since it was below $20 for so damn long. I view $20 - $30 as being the down side risk for Uranium's spot price... but that's a baseless number too.

2008 Jul 09 07:05 PM

[jimmythenuc:]

Hi all- . Like Cameco (CCJ on NY) for its basically dominant position, particularly if/when Cigar Lake comes on line. Second choice is Dennison (DNN on NY) especially when Midwest activates. Both have reasonably informative websites, but (of course) voice the party line. Got burnt on some explorers but went to a couple of "mutual funds" in nuclear...Global uranium (GUR on Toronto also warrants and NLR in NY). They (and CCJ plus DNN) are my bets. Good luck to all, JTN

2008 Jul 09 07:48 PM

[fireball:]

u308 is uex on the canadian exchange? dandaman i have been looking at thorium for months. i have not looked lately. glad you brought it back to mind. just a little leary. seems like it was a little over thirty cents when i was watching it. been leery because so many in that range go to almost nothing.

2008 Jul 09 07:57 PM

[alpha24seven:]

@ Think-about-it

Frances nuclear waste is stored here in the US. Another thing, I travel to France and the French can't wait to get rid of their nuclear. Forget this nonsense the nuclearista keep telling us about how "the French love their nukes". Complete rubbish. And if they were storing the waste on their own soil, it would have been gone a long while ago.

media.cleantech.com/21...

Another thing. The Forsmark incident almost caused the biggest mess since Chernobyl. This was as close as it gets to another of the big ones. Gee, they don't mention this do they now...

www.spiegel.de/interna...

And this whole "carbon free" thing is a complete canard. The nuclearista saw an opportunity to glom on to the back of the global warming/climate change train as it sped through town. They saw it as final chance to get this ridiculous crap out in front of us again.

This will *NEVER* happen. Wall St. doesn't want it. The US Government (except for a few like McCain) doesn't want to be the insurance back stop on this. No private insurance will get anywhere near this. Crap, we can't even put what we've got in Yucca mountain.

Here's how you make money. Let the nuclearista get cocky, let them increase spending in their respective nuclear aspirations. Then as you watch the wrath of hell descend upon their shoulders, you put a big ol short on all these nuclear enterprises.

Easy money.

2008 Jul 09 08:19 PM

[Inglefox In...:]

"Does anyone have a good read on the amount of Uranium stockpiles? Is it even possible to estimate? The author says 10 years to deplete current stock piles but I think that is a baseless guess."

The answer to this question is that the 10 year estimate is what is given by the Energy Watch Group assuming a constant demand of 67kt/year with new production filling only approx. 42 kt/year.

2008 Jul 10 12:48 AM

[aquaculture:]

greenchipstocks.com/ar...

2008 Jul 10 05:43 AM

[john s. gordon:]

uranium shortage? buy canadian heavy water reactors & burn thorium. places like india, brazil etc. have lots of monazite.
> jack

2008 Jul 10 08:31 AM

[tenureme:]

Take the dangers of meltdown, proliferation and disposal of spent nuclear fuel out of nuclear and what do you get?... pebble bed reactors. "Walk away" safe (as in if everything goes wrong you can walk away, grab a pizza, and come back and deal with it at your leisure... they don't have hot cores that need to be cooled constantly), can be built for a fraction of the cost of current nuke designs, low-grade fuel is easily recycled. A few have been built and proven as prototypes (Germany, S. Africa) and have won the approval of some prominent environmentalists. I am not a proponent of nukes as we know them (prohibitively risky, even if the risks are very minute), but if you can take the downside out of nukes, all you have left is power.

Upgrade our electrical grid's infrastructure and security, put some pebble beds on line, and let's start plugging in our EV cars. Here is a link to learn more about pebble bed reactors... it's a new way of looking at nukes.

en.wikipedia.org/wiki/...

2008 Jul 10 09:55 AM

[john s. gordon:]

i remember visiting fluidyne engineering in minneapolis about 1956 - they were very big on pebble beds. without a complete fuel cycle in place the HTGR remains an interesting research concept.
> jack

2008 Jul 10 10:45 AM

[LiquidSoapD...:]

Firs of all, I'm not saying I'm anit-nuke, but as someone who had a friend who was an inspector at at a nuclear power plant, let's just say things go bad a lot more often then is made public. All the motivation is to hide minor accidents, near catastrophes, etc.. The main problem, according to my friend, was using substandard replacement parts due to greed (kickbacks, etc.), and this is why problems often occurred, and where I fear might continue to occur in the future (even the best designed plants won't function right if someone decides to save a few bucks and use a few substandard parts).

For the time being, plants in the U.S. are currently storing their spent rods in cooling pools within the nuclear facilities. These pools were never designed to store so many rods, meaning the pools need to be actively cooled with fervor in order to prevent a meltdown. This is just the cooling pools, not the reactor themselves! Something goes wrong just with the active cooling, and we have a problem (even after the plants no longer produce electricity). Can anyone really say if storing the radioactive waste in mines is going to harm all living things in the future? Are the risks worth taking? I just want people to be aware that nuclear has more risks than people seem to be aware of. Perhaps it is still the right way to go, but no one can make a good decision without knowing as much info as possible.

2008 Jul 10 11:07 AM

[notsosmart:]

for you & your children & grandchildren & into the future would you rather spend more for energy & be relatively safe or less & take a chance on a major catastrophy? dont forget greed & the bottomline plus coverup are part of our system.why do we need a law to protect whistleblowers?

2008 Jul 10 03:10 PM

[savvy_trader:]

Uranium mills are not very useful if you have no feed for them. Take a look at the mine's reserve grades (%U3O8), mining costs ($/ton & $/lb) and distance to the nearest processing facility. Only the higher grade deposits (>1% U3O8) are viable unless the current spot price doubles. The lower grade deposits will have to wait until these richer deposits play out. Currently, most uranium producers do not want to disclose their costs, and for good reason! Do you homework before investing.

2008 Jul 11 11:31 AM

[LiquidSoapD...:]

7-11-08: Leak closes French nuclear plant

news.bbc.co.uk/2/hi/eu...

2008 Jul 11 01:15 PM

[RECON605:]

I STILL BELIEVE THAT NUCLEAR ENERGY IS STILL NOT A VIABLE SOURCE OF ENERGY FOR ANY COUNTRY.

THERE ARE OTHER ALTERNATIVE ENERGY SOURCES THAT ARE MUCH SAFER AND LESS POLLUTING THAN NUCLEAR WASTE, TO WIT SOLAR, GEOTHERMAL, HYDRO, CLT, NANO MIXED WITHANY OF THE ALTERNATIVES.

2008 Jul 13 12:55 PM

[sabzuz:]

Uranium is one of the most common elements on earth, so the mineable reserves only on the spot price of uranium e.g. price goes up and the uranium mining projects will start popping up everywhere where they get the permit to mine.
Production costs vary from mine to mine but when I used to work for McArthur River Mine the production costs were around $7/lb but I estimate that the costs have doubled since then.

2008 Jul 15 03:30 PM

[Lin:]

I Agree with DanDaman
Check out Thorium Power THPW , Addresses Many of the bad Facts re uranium for power . when this goes bigtime , OOOwheee !

2008 Aug 15 11:18 PM

[Hot Cell Man:]

The comment about depleting uranium in 50 to 75 years may be true, however with Sodium Cooled reactors (which have gone away thanks to Jimmy Carter) this problem is solved, because the fuel that is used can also be converted for fuel for Light Water reactors. Yes, there is the Radioactive issue, but as with any enrergy source there is always something, someone won't like,,,,, believe me, the procedures in place for safe nuclear are beyond your comprehension,,,

2008 Sep 03 08:34 PM

[Hot Cell Man:]

In response to "LiquidSoapDispenser" July 10th entry. Your friend who is the inspector must realize that if there are problems, and they hidden, or not made known to be fixed, the NRC, and or DOE will shut that plant down in a heartbeat. I find it hard to believe that people working for Nuclear plants do not have the fortitude to come forward and speak out about any problem. After 30 years of working for and within a sodium cooled nuclear experimental reactor, the safety was par none. I've never worked in the commercial world, however from everything I've read, and heard they are just as safe. You mention sub-standard parts. Yes, that is a problem, but only if you do not have a good Quality Assurance process, and in order to get a licence to operate a nuclear facility, you have to prove that you have all the necessary conduct of operations in place to operate the facility which includes a good Quality Assurance program. There are teams of people who's main job is to inspect, and audit all the main and sub main functions of a reactor, and their job is to help avoid problems at nuclear reactors and when anything out of specification or compliance, or any problem is found even if it is suspicious in nature those areas or systems are sublect to shutdown and the problem is fixed. If your friend is true to his job as an inspector then he should be reporting these problems. There are whistleblower laws in place to protect him.

2008 Sep 03 08:56 PM

[Mad Hedge F...:]

Some 20% of US electricity comes from nuclear power. Half of that is powered by fuel made out of reprocessed Russian nuclear weapons which we bought from the old Soviet Union. I didn’t know that. Talk about pounding swords into plow shares!

Feb 21 08:43 AM