Yellow Cake
I've been meaning to write this post for some time but only got around to it now!
My investment thesis revolves around nuclear energy and specifically uranium. You have probably read about a recent renaissance in nuclear energy. There are many reasons for this including increasing electricity demands especially in the developing world, global warming, as well as peak oil.
For a few years now, mine supply (~105 million lbs) has been well short of demand (~175 million lbs) with the difference made up from US and Russian stockpiles. These stockpiles are now greater than halfway depleted and there is indication that Russia plans to end this agreement. Although the U.S. hasn't built a new nuclear reactor in over 25 years, the rest of the world especially Chindia have 82 plus nuclear reactors on the works. http://www.cameco.com/uranium_101/markets/ The world currently has about 440 nuclear reactors in operation so this represents a potential 18% increase.
Mining and uranium mining in general is capital intensive and often subject to regulatory/political/ and operational delays so market mechanisms for increasing supply to match demand are delayed. For example Cameco's Cigar Lake mine, one of the largest future uranium ore bodies in the world began construction in 2005 and has had continuous construction problems necessitating delays and now probably won't start production until 2011. Despite the price of uranium being higher in 2006, mine supply actually decreased from 2005 levels.
More topical is the global warming movement, and many environmentalists now support nuclear power as a way to reduce CO2 emissions.
Uranium itself has had a tremendous run and has increased from $10 in 2003 to $140 in July of this year. It has since backed off and is trading aroun $90. Most uranium mining stocks have tracked the price of uranium.
I've followed a Nuclear Energy Index stock symbol NLR that is comprised of many companies involved in all aspects of nuclear power production including uranium miners, refiners upgraders, as well as nuclear power plant design and construction companies.
http://www.fool.com/investing/etf/2007/08/31/go-nuclear-with-etfs.aspx
http://www.vaneck.com/index.cfm?cat=3193&tkr=NLR&setGUID=done
It has corrected along with the price of uranium and it may be a good time to play this emerging energy theme.
posted by Des @ 1/03/2008 07:28:00 PM
4 Comments:
I like the alternative energy idea. coincidentally, we were talking about Nuclear energy at lunch today. The timing looks good. NLR is at $36; we have about $2900 in cash. We could do a couple of things: buy an odd lot; someone could add some more money to get us to $3600; or wait until we sell something to get into it. XLF should be a short term pickup so we could wait a few months.
I believe that the era of “easy oil” is over. This combined with the global warming and the environmental concerns make alternative energies an appealing investment.
But there are various alternatives to the easy oil, each requires additional research and better technologies to become feasible. Examples are:
- renewable energies (e.g. wind and solar): not yet economically competitive
- coal: environmental concerns – require better technology and filtering
- natural gas: problems with handing and transportation
- oil sands: still not economical
- un-easy oil (e.g offshore/deepwater oil): better technologies needed
- corn and ethanol: (this one only seems stupid to me!)
- nuclear: environmental (e.g. waste) and safety concerns
Each of the above can be a topic of discussion. The fact that there is a shortage in oil does not guarantee that nuclear will be the “winner alternative” among these. As far as I know huge investments have been made on any of these options and research has started to improve the current technologies. Is there any reason that we should pick the nuclear?
Also a nagging question is that why while the oil (energy) price has reach the record high both the NLR and uranium prices has dropped?
Good points about alternative energy. As well as investing in old energy, I would also consider investing in wind, solar and geothermal. There just aren't good ways to play wind aside from possibly GE. I would argue that wind is economically competitive, but it just needs scale and commitment from governments. Germany and Denmark in particular have huge installed bases of reliable wind power. BP is a company that is investing in other forms of energy. There are European companies like Vestas AG? that are big on wind but it doesn't even trade on the LSE.
Most solar companies are trading at very high multiples and are at risk of new technologies disrupting them. Other plays would include Timminco which mines and processes silica.
Nuclear is a proven technology and although I'm no expert, it exists and it is currently being embraced by China. For sure there should be a scientific debate about the energy return on energy invested (EROI) w.r.t. nuclear especially since even uranium is predicted to be depleted in 30-50 years. The British government is expected to fast track new nuclear plants and even the gov't of Ontario has contracted out British Power to refurbish all six Bruce nuclear reactors (not all six have never been running at the same time). So despite nuclear having real issues that should be debated on a societal level, this has never stopped governments from endorsing certain agendas. From my reading, nuclear is going ahead in many parts of the world - damn the science and safety or not! The Oil Drum recently had a lengthy article regarding nuclear power including safety concerns. I find this website to be quite resourceful but sometimes some authors have axes to grind.
And with regards to uranium pricing, there has never been a historical relationship between the price of oil and uranium save for maybe the year 2006. Right now uranium stocks are out of favor, suffering from a correction but I think this macro theme has legs.
I found an alternative energy ETF called GEX, with some names in solar, wind, water; none of which I've ever heard of. Unfortunately, it's highly correlated to OIL prices, so I'm not sure it's an "alternative" in terms of investment :)
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