Juggling Uranium

I was about 10 years old when tragedy struck at Chernobyl.
At the time I did not grasp the full extent of the
consequences of this event, only that my beloved excursions
into the woods to collect mushrooms were put on hold.

But the nuclear disaster at Chernobyl affected much more
than a few mushrooms. It killed many people and sickened
thousands more, in the process creating global panic over
nuclear power.

The accident sharply increased reservations about using
nuclear energy. But nuclear power, and the plants that
harness it, have staged a Renaissance since Chernobyl…and
for good reason.

Today nuclear generators are operated for energy production
in 31 countries. The 439 power plants worldwide make up 16%
of the world’s energy consumption.

Keith Parker, chief executive of the Nuclear Industry
Association, points to a statement by James Lovelock, one
of the founders of Greenpeace: "Only nuclear power can halt
global warming".

Considering the rate of today’s global energy consumption,
the goals of the Kyoto Protocol cannot be reached without
nuclear energy. In addition, the reduction of greenhouse
gases must not be seen in the context of a constant, never
changing demand for energy.

Besides the ambitious goals of the Kyoto Protocol, another
aspect contributes to the pro nuclear energy argument: A
large part of the global oil and gas reserves are found in
regions that are politically unstable or have the potential
to be.

For example, the largest proven oil fields, and
consequently, gas fields, are located in Saudi Arabia, Iraq
and Iran.

Even nuclear energy is dependent on natural resources – not
on oil or gas, but uranium. Unlike oil and gas, uranium is
found in stable countries like Canada and Australia. More
than 50% of the world’s uranium is produced in these two
countries.

With oil prices soaring and supply depleting, it is no
surprise to some that we are building nuclear power plants
around the world at a ferocious rate.

In Asia, nuclear power is dominating the development of new
power plants. Of the 30 most recently completed, 20 are
found in Asia.

China is currently planning the development of 30 nuclear
power plants. By 2020, their capacity is predicted to
increase by 500%. Other experts, however, expect energy
derived from nuclear production to account for only 5% of
the energy mix by the emerging superpower. The growth
potential for China is therefore enormous.

Japan, Taiwan and South Korea are planning additional
nuclear power plants. Russia also has several plants in
development. For the next ten years, a total of 69 nuclear
power plants are to be developed and 38 are planned to be
shut down. At the end of the day, the number of operational
nuclear power plants will rise significantly.

The USA currently operates 103 nuclear power plants. The
superpower has gone through a wide-ranging consolidation
process forced by the necessity to reach economies of
scale. The ten largest providers control 61% of the entire
sector. Under the Bush administration, plant operation life
was recently significantly extended. In total, 74 power
plants have been granted or will shortly receive a 20-year
extension.

By now, dear reader, you might be asking yourself how you
can best profit from this growth in nuclear energy?

Buy uranium – the fuel of any nuclear power plant! Uranium
can only be bought indirectly as it is not an available
market commodity. In contrast to gold, silver or platinum
you cannot really put a kilogram of uranium in your safe –
and if you did, it is most likely that you would shortly be
visited by the National Security Agency of your home
country…

Now, I won’t completely rule out that a few of you might
find the thought of making friends with the National
Security Agency entertaining. But for the rest of you, I
suggest to take a look at the shares of uranium producers.

The worldwide market for uranium is dominated by a handful
of producers. The largest among them are Rio Tinto, WMC and
Cameco. The Australian WMC corporation was just recently
taken over by BHP Billiton.

The price of uranium steadily fell in the second half of
the 1990s. In the year 2000, prices were as low as US$7 per
pound despite production costs of approximately US$10.
Since then, prices have more than tripled. In the year 2004
alone, the price for uranium rose by 43%. Currently, the
price is quoted at more than US$29 per pound!

The low prices of the 1990s made the extraction of uranium
rather less enticing. The uranium producers held back
investments in new uranium mines because it would simply
not have paid.

The consequence is that far more uranium is consumed than
can be produced! While worldwide uranium production rose
from 93 million pounds in 2003 to 104 million pounds in
2004, this was matched by a global consumption of 180
million pounds!

All this may lead some investors to think that juggling
some uranium may not be as hazardous as first thought.