Uranium Bull or Bust?
Research for Online Investors

by John Dalt

3/15/11

News out of Japan sounds bad, and then gets worse.  The tsunami that hit Japan last week after the earthquake in the north shut down 11 of Japan’s 53 nuclear plants.  The epicenter of the catastrophe is 160 miles north of Tokyo on the east coast of Japan.  The government has requested that citizens curtail use of electricity.  This morning they shut down five steel plants to save power.

This picture is from inside the Fukushima Nuclear Plant where four of the six reactors have overheated and sparked explosions.  Picture taken last August, courtesy of Christian Science Monitor/Getty Images.

Operators and emergency personnel at the three affected nuclear reactors are working to limit radioactive release and gain control.  They have lost cooling water and are now flooding the reactors with sea water to cool them.  The fourth reactor on the site has now developed problems.

Since last Friday, when the earthquake struck and set off the chain of events, the predominant wind has been out of the west.  This served to blow any radioactive leakage out over the ocean, away from the mainland and China.  Early this morning, the wind shifted and blew to the Southeast towards Tokyo.  Officials declared a ‘no-fly’ zone for 30 kilometers around the reactors and evacuated everyone within 20 kilometers.  The government is struggling to supply food, water and heat to displaced citizens.  Temperatures are close to freezing.

Within a few hours the wind shifted back to out of the west and reduced the danger to Tokyo and the southern part of the island nation.  An aftershock earthquake struck Japan this morning, registering 6.0 on the Richter scale.  Buildings in Tokyo shook.  There were two blasts at the nuclear plants and officials said one of the cores was exposed to the atmosphere.  Radiation levels were measured at ten time’s normal in Tokyo.

This morning, German Chancellor Angela Merkel ordered seven nuclear reactors closed for a three month review of the country’s seventeen plants.  The seven closed reactors were built before 1981 and were recently granted an extension to their operating licenses.  Officials will review lessons from Japan’s accident, cooling systems and the likelihood of earthquakes at Germany’s nuclear plants during the next three months.

In 2001, the German government passed a law requiring the closing of all nuclear plants by 2021.  Chancellor Merkel’s government reversed that law last year and extended licenses on existing plants by twelve years.  Nuclear energy provides 26% of Germany’s electric power.

Where does this leave the world concerning nuclear power?  What should we do as investors?  Does the accident in Japan spell the end of nuclear power generation?  Is this another Chernobyl?  After that accident, the price of uranium decreased 57%

We don’t think the world will turn from nuclear.  Face it, we need power…and nuclear is the lowest cost base load power available after hydro-electric and coal.  How would you like to site a hydro-electric dam today?

There are presently 443 nuclear reactors in 29 countries generating 2560 billion kWh of electricity, according to the World Nuclear Assoc. (WNA).  There are presently 62 reactors under construction, and 158 planned or already on order.  Another 324 reactors are in the proposal stage.  China presently has 13 operating nuclear reactors, 27 under construction, 50 planned, and 110 proposed.  The WNA projects growth in uranium demand to increase 33% in the next decade.  WNA estimates operating reactors will require 68,971 tons of uranium in 2011.  China wants to triple their nuclear generation capacity, and India wants to double theirs by 2020.  We think these are conservative estimates.

Here are construction costs for one megawatt of generated electricity in 2009:

• Coal…………             $2.9 million
• Nuclear……..            $3.75 million
• Geothermal…            $6.2 million
• Wind Farm…..          $6.75 million
• Solar…………            $7.9 million
• Wave…………           $8.2 million

How much clean energy can the world afford?

Just last week, Reuters carried a story that the world would run out of uranium if new supply did not come on line in the next two years.  The U.S. is benefiting from weapons grade uranium that this being re-refined for use in power generation.  These contracts end in 2013.  Western countries consume about 7,000 kilowatt hours per person per year.  Chinese citizens use 2,250 and in India it is only 500 kilowatt hours per year, per person.

These countries are getting richer and their citizens want to improve their lifestyle.  Their governments must supply more electricity and do it inexpensively enough to continue growing the economy.  Nuclear power generation is the inexpensive choice for the future.

To the mailbag:
I think your recommendation in the Long-Term Portfolio of a uranium stock is crazy.  We should wait until the dust settles.  Since when do politicians make wise decisions?---paid up subscriber D.E.

John’s reply:  Part of me agrees with you.  I would say that by the time we let the dust settle and know all we need to know, everyone else will know it too.  We must be calm and disciplined when all around us lose their heads.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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