Markets are now in their Santa phase. Expect rallies with brief interruptions for consolidation or p...
Nuclear Power’s Glowing Allure
02/23/2007 12:00 am EST
In his recent workshop at the World Money Show, energy strategist Elliott Gue laid out why he thinks nuclear power is poised for a big comeback and how investors can play it...
From "New Energy: Nuclear Power, Clean Coal and Biofuels" at the World Money Show Orlando 2007:
Nuclear power has the most potential to be quickly ramped up to meet growing demand for electricity. Nuclear power reduces dependence on fossil fuels, particularly from places like the Middle East. [It also] doesn't really produce any direct pollution of anything. There has been a growing concern in some parts of the world about carbon dioxide emissions from coal-fired power plants.
The other advantage of nuclear power, of course, is a much cheaper overall cost of power. [In] your average natural gas-fired power plant, about 85% of the cost of the power from that plant comes from the cost of natural gas itself. [But] only about 5% of the cost of producing nuclear power is the cost of uranium itself. So, the cost of generating electricity from nuclear power plants isn't really dependent on any commodity's price, and that's not true for any other source of power out there really.
China is planning to build about 40 new nuclear reactors over the next 25 years. They are very, very conscious of the fact that they need a lot more power and they need it quickly. India has very, very similar plans: They are looking to import uranium from places like Canada and Australia, maybe even the United States, and also nuclear technology from these countries.
In 2006 175 million to 180 million pounds of uranium were used in the world's nuclear power plants. About 110 million pounds were mined. Obviously, you can't keep mining less than you use; otherwise, you are going to run out.
But because of a long bear market in uranium prices in the 1980s and 1990s, there just aren't the mines out there churning out the stuff that they need. So, what you have actually seen is uranium prices in 2000 trading under $10 a pound; they are now at $75.
How do we play uranium? Uranium Participation Corporation (U) trades on the Toronto Exchange [and] actually holds physical uranium. Paladin (PDN) is an Australian-based company that also trades in Toronto. They just started production from [a new mine in Namibia, Africa]; eventually they should be able to ramp it up to about 2.5 million pounds of uranium annually.
Another company, which is going to start producing later this year, is called Energy Metals (EMU). [Its] mines are in the United States, which actually is beneficial in the sense that the tax structure is quite attractive here. It actually took an NYSE listing out about two or three months ago. By the end of this year they should be producing about one million pounds of uranium [annually] and they are signing contracts now at very attractive rates.
At worst the tax cuts will validate current market valuations, says Tom Essaye. At best they’l...