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  • Has uranium finally bottomed? 0 comments
    Oct 30, 2011 3:03 PM | about stocks: CCJ, RIO
    It has been a while since I last talked about uranium. However there was some interesting news this week in the uranium industry that leads me to believe that the bottom is finally in for uranium and long suffering uranium stocks. Since the inception of the newsletter I have been a long term bull on uranium. In fact, we were during quite well with uranium until last year’s Fukishima disaster. After the disaster investors ran away from the sector like their hair was on fire. This emotional reaction was expected but these are the type of situations that dictate clear thinking and a review of the facts and lead to outsize profits. In the wake of the disaster there were many who said that nuclear power was dead and this view was given credence when Germany announced it was closing eight plants and phasing out its nuclear plants. China said they were suspending new permits for nuclear plants until they reviewed the country’s nuclear safety regime. As usual a period of time has passed and we can now review what countries are really doing and not what they are saying. The facts are that China, India, Russia, South Korea, and several smaller countries have continued to build out their nuclear fleets. In fact the Japanese have even said that they will continue to have a nuclear program.
     
    Japan remains committed to nuclear power despite the crisis at the Fukushima Daiichi Nuclear Power Station, Prime Minister Naoto Kan indicated Sunday, as workers moved closer to repairing the crippled plant by opening the doors of a damaged reactor building.
     
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    Despite the crisis in Japan, Mr. Kan indicated Sunday that his government was not rethinking the nation’s energy policy. There had been speculation that the government might seek to shut down more nuclear plants after Mr. Kan requested last week that the Hamaoka nuclear plant in central Japan be temporarily closed because of safety concerns.
     
    Mr. Kan told reporters on Sunday that he would not seek to close any more of Japan’s 54 nuclear reactors. He said the Hamaoka plant, 125 miles west of Tokyo, was “a special case” because it sat atop a major fault line. Government seismologists say there is an almost 90 percent chance of a major earthquake on the fault line within the next 30 years.
     
    Germany may say they are going to get rid of nuclear power but saying it for political purposes and actually doing it are two different things. Quite frankly without nuclear power Germany would not be the industrial power house it is today. They can either produce nuclear power at home or import it from France or the Czech Republic. An even worse prospect is that they can import natural gas from Russia. In fact energy production has dropped since Germany announced the closure of eight nuclear plants.
     
    Germany was the first major country to abandon nuclear power following Fukushima. Merkel's move is in contrast with the U.S., China , Turkey, India, Russia and many other countries who are continuing full speed ahead with safe and next generation nuclear reactors.
     
    China (NYSEARCA:FXI) just concluded a nationwide safety inspection following Fukushima of nuclear plants and will begin approving new reactors as they seek to multiply their energy capacities. China finished the inspections post Fukushima one month ahead of schedule indicating their eagerness to satiate increasing energy demands from its growing economy. China will likely adopt the AP 1000 design being the first to adopt next generation standards that are safer, economical and efficient.
     
    Germany must understand that a modern industrial nation must utilize nuclear power to satisfy its energy needs. Now we are witnessing the consequences of Merkel's move away from nuclear and how it may be a serious blow to future of the Eurozone. Germany, the once industrial giant has become a client nation as domestic energy production dropped in the second quarter impacting negatively their GDP.
     
    Eurozone banks are in serious danger of collapsing. Unfortunately Germany is involved in financing these troubled entities. The question arises, how will the Eurozone survive with Germany's economic future in doubt?
     
    Deutschland's experiment is a failure and now the world has observed the economic consequences of abandoning nuclear. Months ago the leaders of German Industry wrote an open letter stating, "that the ending of German Nuclear Energy with such unprecedented haste gives us increasing worry." Merkel may have destroyed Europe's most advanced modern industrial machine as the only country supporting the Euro finally succumbs self destructively.
     
    Germany is swimming against the tide as the rest of the world says, "Yes" to nuclear energy. There are 443 operating reactors, which does not include new plants coming online. There are currently 62 modern and efficient power plants being built all over the world including 27 in China, 5 in India, 11 in Russia and even 2 in Japan among many others that have elected to continue turning on nuclear power. In fact, uranium is fast approaching a supply-demand deficit and there is a possible shortage in uranium ore which may benefit uranium miners.
     
    Another often overlooked situation that has been occurring without any coverage in the US is the continued systematic takeover of the world uranium industry by Russia. The history of this unreported event is made clear in a recent article in the Asia Times.
     
    Over the last two decades, Russia has aggressively exploited and leveraged the nuclear legacy of the Cold War competition between the United States and the Soviet Union.

    In places like Kazakhstan, Canada, Niger, Australia, the United States and Mongolia, Russia's (AtomRedMetZoloto) Uranium Holding Co or ARMZ is seeking to dominate worldwide uranium production.
     
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    If the nuclear power industry continues to grow as anticipated, there will be a shortfall of supply as existing uranium reserves worldwide experience accelerated depletion after the legacy feedstock kitty is gone. [3]

    And the future will also probably see Russia and ARMZ at the heart of the global nuclear fuel industry.

    Russia is exceptionally well-positioned to become the prime player in the 21st century commercial nuclear industry, in large part because of its dominant role in the business of refining uranium ore into usable fuel.
     
    There is an excellent case to be made that Russia is setting itself up to dominate the nuclear fuel cycle in a manner similar to how China currently dominates the rare earth industry. This will lead to higher prices and more power for Russia and is consistent with Putin’s view to use Russia’s vast natural resource endowment to make Russia relevant again on the world stage.
     
    The last event that gives me reason to believe that we are at a bottom in uranium stocks is the recent bid for Hathor Exploration by Cameco and then the subsequent higher bid by Rio Tinto. It is obvious that these large mining companies, that actually know what is going on in the industry, see value at these levels and in the case of Rio Tinto are prepared to bid up quality resources.

    Specific recommendations reserved for subscribers of the Actionable Intelligence Alert. A three month trial subscription is free.
     
    Stocks: CCJ, RIO
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