Mapping Out The Opportunities In The Coming Nuclear Renaissance

by: Simit Patel

With the Federal Reserve committed to lax monetary policy and money supply measures like MZM continuing to soar to new all-time highs, those educated in the Austrian school of economics will naturally begin to wonder where the next bubble(s) will be. I previously outlined my top six picks, listing uranium as a very likely candidate. One of the reasons for this is that while uranium is often associated with fear and war, it can also be sold as a symbol of human inventiveness and the magical nature of technology. Nuclear can take us past the age of fossil fuels, and so it carries a very optimistic message. I believe it is this kind of optimism that paves the way for the excess liquidity created by central banks to come rushing into the nuclear sector (NASDAQ:NUCL), kickstarting a mania in corresponding stocks.

I believe the easiest and safest way to play this opportunity is through uranium, and that is a primary focus of mine. However, as this is a real bull market driven by an intensifying supply/demand imbalance -- regardless of macroeconomic liquidity issues -- there is an entire value network, well beyond uranium, that should rise. As I wish to diversify to ensure I am covered throughout the nuclear value network and not just solely in uranium, I do wish to add some stocks that are not uranium-focused but could be characterized as part of the emerging nuclear value network in my portfolio.

The first order of objective in regards to achieving greater diversification within the nuclear sector is to identify what resources, besides uranium, can benefit from the greater demand for nuclear power. Here's a list that's currently on my radar:

1. Graphite. Graphite is used extensively in the operation of nuclear reactors, as it is very heat resistant. Graphite is also something I've been hearing more of a buzz about in the resource sector; Mickey Fulp identified it as potential bubble area in 2012. The only graphite company on my watch list is Focus Metals (OTCQB:FCSMF). Focus operates out of the Labrador Trough, an area I regard as a keystone of sorts because of the abundance of mining companies operating there.

2. Rare Earths. Rare earths are used in everything -- nuclear power generation included. Investing in rare earths is not something I've felt comfortable with, largely because it requires having a deep understanding of the metals, their scientific applications, and how specific mining stocks fit into an appropriate industry value chain. I find it to be more complicated and more conducive to microeconomics, rather than macroeconomics, in comparison to something like gold or uranium. Still, though, given the inelastic demand for many of these rare earths, the opportunity still makes sense. Quest Rare Minerals (OTC:QRM) is the only rare earth miner in my portfolio, although I'll be adding Altius Minerals (OTCPK:ATUSF) shortly as well. Altius is more focused on iron, though as it employs a financial model in which it owns royalty streams and equity stakes in many other mining firms, it does have some exposure to rare earths.

3. Beryllium. A rare earth that may become especially useful in the creation of nuclear power is beryllium, which is being experimented with by IBC Advanced Alloys (OTCQB:IAALF) as a superior source of nuclear power fuel. Materion Brush (NYSE:MTRN) is the only U.S. producer of pure beryllium, and accounts for nearly half the beryllium compounds and alloys produced in the United States.

Equities as a whole is a class I'm still very bullish on, as I expect the broader indices to continue rising due to low bond yields and continued expansion of the money supply.

Disclosure: I am long OTC:QRM. I will initiate a position in Altius Minerals on the TSX exchange shortly.