Investing in Uranium
America's "Other" Energy Crisis
With election season now kicking into a higher gear, the real issue of 2008 has suddenly grabbed the center stage. From Maine to California, and everywhere in between "it's the energy crisis-stupid" and it's changing the political landscape.
But that is what happens when energy prices skyrocket, wallets slam shut and our economy gets crippled in the process. Peak oil has its price and this is one cup that won't be passed.
Of course, the problem is that while our leaders failed to lead, the peak oil train just kept coming on down the tracks. In four short years, oil has gone from $40 to $140.
So people worry.... people get angry.... and suddenly people demand answers. And who can blame them?
That has made for some strange bedfellows as the political classes do what they do best - pander for votes. So now almost everyone but Nancy Pelosi wants to drill, drill, drill.
But even Nancy has her reasons. She is "trying to save the planet" you know—pretty heady stuff for a kid from Baltimore. (Full Disclosure: My Dad says he used to date Nancy back in the day. Of course, if he had married her instead of my mom I wouldn't be poking fun at her today. Cosmic huh? I bet she's sorry now.)
Meanwhile sensible people have agreed that while there is certainly no one solution to the energy problem, everything that we do have needs to be thrown at it. That includes a much bigger role for nuclear energy in the years to come and the power of enriched uranium.
Before I get into the investing in uranium side of things, let's delve a little deeper into the debate...
McCain Powers up with Nuclear Energy
John McCain, of course, is nuclear power's biggest champion this fall. He's the best thing to happen to the industry since E=MC2.
During a campaign stop at a nuclear power plant in Michigan on Tuesday, McCain said, "If I am elected president, I will set this nation on a course to building 45 new reactors by the year 2030, with the ultimate goal of 100 new plants to power the homes and factories and cities of America."
That is pretty heady stuff for a guy that finished last in his class at the Naval Academy. Even still, at least McCain was on target. Nuclear power is one of the ways forward.
Even Barrack Obama agrees saying recently, "I think nuclear power should be part of the mix when it comes to energy."
That is a stunning reversal for an industry that had to fight tooth and nail just to survive over the last 20 years. But like I said earlier, people want real answers this time.
Enriched Uranium: America's "Other" Energy Crisis
However, one of the biggest misconceptions about nuclear power at the moment is this: It will end our energy dependence foreigners. The truth is it will not. That's the dirty little secret most people don't know about nuclear power in the United States these days.
You see, while everyone knows we have become virtual slaves to foreign crude, only a few know we also import 92% of the enriched uranium necessary to run our nuclear plants. That is even worse than our predicament with oil where 70% of our supply is now imported.
That's why I call enriched uranium America's "other" energy crisis. Because if nothing else changes we could conceivably exchange one set of shackles for another if we are aren't careful.
And it will likely only get worse when a 20 year program with the Russians called Megatons to Megawatts runs its course in 2013 since almost 43% of what we use comes from dismantled Soviet warheads. After that supply runs dry, it is not inconceivable we could be completely on our own, unable to meet our own needs.
That's a current danger that we can ill-afford and Washington knows it. Over time, those potential shortages will only be exacerbated as more and more nuclear plants here and abroad begin to come online and demand skyrockets.
According to the World Nuclear Association, there are 439 reactors operating globally, with 36 under construction. Moreover, there are also 93 new reactors on the drawing board, with another 219 proposed.
Investing in Uranium: Enriched Uranium Demand Skyrockets
And should all of the planned and proposed reactors be built, the world total will be more than 787, or almost a 79% increase over the current level—-the vast majority of which will be fueled with—you guessed it— enriched uranium.
So at some point in the future, enriched uranium could be no different than oil—sold off in a tight market to the highest bidder. Sound familiar?
Meanwhile, the price of uranium is headed higher since falling off its $136/lb. peak in 2007. Its current spot price is roughly $64/lb, which is a slight recovery from the $59/lb recorded only weeks earlier. In fact, Goldman Sachs analysts now see uranium rising to over $90/lb in the near future. For reference, uranium went for as little as $10/lb. only 6 years ago.
Higher future demand will only push the price of the commodity even higher.
Unfortunately, nuclear energy is just another area where we have been caught footed again. That's because while America allowed its nuclear industry to wither on the vine out of fear, the rest of the world moved on.
While we dithered, everyone else kept building...and building...and building. The good news though is that the process of rebuilding our nuclear industry began with the passage of the Energy Policy Act of 2005.
In it, the seeds of the industry's rebirth were sown. Specifically, the 2005 act provided the nuclear industry the following:
- $3 billion in research subsidies
- Over $3 billion in construction subsidies for new nuclear power plants
- Nearly $6 billion in operating tax credits
- Over $1 billion in subsidies to decommission old plants
- A 20-year extension of liability caps for accidents at nuclear plants
- Federal loan guarantees for the construction of new power plants
However, as important as the legislation has been to the industry, it is just the start. After all, rebuilding an entire domestic industry takes time.
Until then, Americas "other' energy crisis is one that we can't afford to ignore. Our leaders need to lead.
By the way, if you think McCain's talk of 100 new reactors is a bit unrealistic consider this. There is company in Arizona that is ramping up to produce 4,000 smaller sized reactors that are so small they can be shipped by rail and set up on site. And they are not the only ones headed in that direction. But that is a topic for next week.
Your keeping-an-eye-on the-future analyst,
Investment Director, The Wealth Advisory
PS. There is one company that is working overtime to head off this shortage of domestically produced enriched uranium before it becomes a crisis. In fact, you could almost say that it's a monopoly at this point. The best part is it's heavily undervalued. To learn more about this company click here
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