Our bias is neutral/bearish on S&P 500 and crude oil, and bullish gold, writes Bill Baruch, Pres...
Nuclear Power Isn’t Radioactive Anymore
02/22/2010 10:50 am EST
Nuclear power is back in fashion.
It has been 30 years since the United States built a nuclear power plant, but now President Obama has proposed government loan guarantees for two new nuclear reactors proposed to be built in Georgia by Atlanta-based Southern Company (NYSE: SO). They would be the first plants licensed to be built since the Three Mile Island reactor accident in 1979.
That scary experience, subsequently exceeded by the meltdown in Chernobyl, Ukraine, created the NIMBY (not in my back yard) response to any proposed new reactors. There are 104 nuclear reactors operational in the United States, which produce about 20% of our electricity. Meanwhile, China has 11 nuclear reactors operating and 13 new reactors under construction. And France gets 77% of its electricity from nuclear power.
It appears the United States is about to follow their lead. In his speech on February 17th, the president said that nuclear power was necessary because it will provide a source of “clean” energy—and will help free America from dependence on imported oil.
That’s all true. But you can’t build a nuclear reactor without uranium—and America had better start thinking twice about where we’re going to get that precious natural resource.
The US has only 6% of the worlds known recoverable resources of uranium. And you guessed right if you realize that a quarter of the world’s uranium is from Russia and Kazakhstan. Another 25% of the world’s uranium ore is in Australia—where the Chinese have been busy buying up some of the largest uranium mining companies.
With increased demand for uranium and limited supplies not necessarily concentrated in friendly, generous hands, you can do the math on uranium prices. But that’s not a trade without risk. Uranium soared from $30 per pound to a peak of nearly $140 in mid-summer 2007. The global recession brought prices right back down to the low $40s.
(Full—and embarrassing—disclosure department: After writing a column about the potential of uranium three years ago, I rode my own stock investments in the sector up to the top and back down again! They’re still in my portfolio, and now, I’m about even.)
Uranium has had a long history of booms and busts. Back in the 1950s, when nuclear weapons and the potential of nuclear power came to public attention, the idea of buying uranium stocks was synonymous with scams. Small mining companies, headquartered mostly in Utah, started selling worthless shares in nonexistent mines.
Today, with nuclear power coming back into fashion, there are far more legitimate ways for investors and speculators to invest in uranium. Futures are traded on the Nymex, a division of CME Group (Nasdaq: CME), of which I am a corporate director.
Or you can purchase shares in two exchange traded funds that concentrate on the nuclear energy industry. The iShares Global Nuclear Energy ETF (Nasdaq: NUCL) and the PowerShares Global Nuclear Energy ETF (NYSEArca: PKN) are not pure uranium investments. They each have about half of their investments in the power generating companies that are in this industry. And there are individual stocks of legitimate mining companies that produce uranium ore.
It has been a long time since public opinion has rationally weighed the fears against the benefits of nuclear energy. But if the tide does turn, the critical ingredient is the raw material that makes those reactors work.
And if you want to see just how difficult it is to fill the demand, consider this: A significant portion of the uranium for US reactors now comes from dismantled nuclear bombs—including Russian bombs!
So, how do you feel about nuclear power? Still don’t want it in your backyard? Or is it something we need—and a chance for investment profits?Please join the conversation and have your say.
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