Energy Diversification

Nuclear Power Is in Demand

Its important that we are finally highlighting that nuclear power is clearly not an emission-free, or CO2-free energy source. The plant construction and uranium mining produce various pollutants and leave mine tailings.

This does not invalidate the nuclear energy proposition, but its clearly an issue worth evaluating in light of the climate change arguments.

From an investment standpoint, the single largest exposure to all aspects of the value chain from uranium exploration and production to nuclear plant construction and management is Areva (CEI.PA / ARVCF.PK). For a more diversified energy and infrastructure play, but with clear exposure to nuclear plant development, Shaw Group (SGR) is a good opportunity. Energy Solutions (ES) is a back-end play on the management of nuclear sites & waste.

Its important not to buy a basket of any old equities with nuclear attached to them. The utilities mentioned above are going to be the ones paying to develop nuclear plants, so its a capital drain for them for a long time. And with the latest estimates of plants costs at $5 billion to $12 (twelve!) billion, even with loan guarantees, this is a distant way to play nuclear.

Denison Mines (DML.TO / DNN) should clearly have been mentioned alongside Cameco and Uranium One. The point I would focus on here is a very strategic one: CHINA is likely to be both the nearest-term AND largest nuclear developer. Why? It can make it happen faster (for better or worse) because NIMBY concerns can be ignored. More importantly, remember that the Chinese lose 5,000 coal miners every year! These direct deaths coupled with the indirect health issues are a clear concern in China -- the government is aware and cares about these issues.

Many uranium-watchers claim China will try to tie up strategic uranium reserves by buying public explorers and producers. China has no reason to publicly announce this, but it has recently confirmed that its nuclear development is much further along that was expected. China also reportedly met with Cameco recently.

If China were to buy uranium companies, it would go for geographically accessible nations -- and ones without the finger-wagging they get from Australia (for example) about weapons proliferation. India is also going to have the same issues, given that even America will not sign a nuclear agreement with the largest democracy in the world!

Uranium One has operations in Kazhakstan -- very accessible to China and India. Despite its recent logistics challenges operating there, UUU.TO is a logical target, if you like this strategic reserve argument. The American and Canadian producers are not logical targets. Africa is a logical choice, although it a true energy crisis, the Chinese may feel safer having a source closer to home.

I'd steer clear of USEC -- the growth opportunity here has never been clear, and US uranium demand is years away from a significant increase. In fact, the biggest risk to US uranium supply is the Russia agreement being cut back -- but down-blending Russian HEU is a major revenue source for USEC, so it could even negatively affect them.

Finally, hedge funds enjoyed a huge run-up in both physical uranium and uranium explorers. They have reportedly been running from this sector, so the bubble in these shares could still be deflating for a while. Remember there are over 500 public uranium explorers -- clear indication of a bubble within this small sector of the market.

Water Industry Spending Still Up - But Clouds Loom

This commentary was valuable, because it highlights how macro predictions of how many billions of dollars we need to spend on water infrastructure may not materialize in the near term. We have been hearing about water and general infrastructure upgrades for years.

There are a few overseas water plays -- difficult to gather good information and insight on, so this is an opportunity for any analysts with a deeper focus on water.

I would look at Epure (China based, Singapore traded) and Doosan (Korea).

Water Infrastructure Attracts Big Spending But Filtration has the Momentum

You highlight all the right issues that will need to be addressed, or will address us over the coming years if we do not improve our water infrastructure.

However, several issues leap out:

1. We have been hearing about the need for water infrastructure spending in this country for years. Every disaster (blackouts, bridge collapse, etc) is positioned as the catalyst for infrastructure spending. Is it fair to say this will be a 10 - 20 year spending ramp, rather than a near term (1-3 year) event?

2. Given that most water systems are government run and financed (through user fees and bond issuance), a recession could reduce tax revenue and push back these improvements? (Note -- As you point out, this could benefit high-tech band aid solutions like INSU.)

3. With respect to China, this needs to be flushed out, so to speak. The Olympics are almost here, so we can't use Beijing as an argument for why the Chinese need to accelerate spending. China just reshuffled its infrastructure leadership. Do you have any specific insight on how exactly China's water upgrades may play out? (What about companies like Epure and Doosan, with a big presence in Asia?)

4. Your water surveys are very interesting to consider. Of course, given the years of infrastructure expectations that have not materialized, have you back-tested these surveys over the years to see if the respondents are good predictors? Or do they suffer from center-of-the-universe syndrome as many bureaucrats do?

Final comment: It will be useful to see how solar energy spending by governments plays out over the next year or two. Will government spending cutbacks reduce the enthusiasm for these subsidies? Or will the focus on infrastructure and energy needs keep them subsidizing solar power? I am not arguing for solar power; rather pointing to it as an indicator of how tough economic times could lead to *reduced* infrastructure spending.

Notes from the 35th UBS Media Conference: Misleading Investors Back to the 70’s

The article is an unapologetic advertisement for the author's company.

After wasting 5 minutes of my life reading this, and wading through paragraph after paragraph of comma, separated, lists, of, everything, its not quite clear what he's saying -- and its certainly not clear that I should dump my holdings in any of the media stocks he mentions.

This article has little to do with investing, and its a poor reflection on both SA, and more importantly, Yahoo. Why does Yahoo waste its platform giving high profile news placements to advertisements like this.

I feel like someone just told me to drink more Ovaltine.