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« Mickey Fulp: Long-Term Uranium Demand Will Continue | Main | Solar Highways – The Future? »
Wednesday
Mar302011

Go Nuclear, Buy Japan And Uranium Stocks

Warren Buffett.JPG

“Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don’t think Japan will be an exception”

– Warren Buffett, March 21, 2011.

Natural and man-made disasters spur innovation in new technologies. While the events are fresh, and people are in crisis, media coverage becomes hyper-focused on every bit of bad news. As a result, there’s an overall lack of proportion regarding the disaster and prospects for recovery. The Wall Street Journal, in a recent editorial entitled “Nuclear Overreactions,” provided these clear-minded observations:

“Our larger point is less about nuclear power than how we react as a society to inevitable disasters, both natural and man-made. Because a plane crashes, we don’t stop flying. Because an oil rig explodes in the Gulf, we don’t (or at least we shouldn’t) stop drilling for oil. And because the Challenger space shuttle blew up, we didn’t stop shuttle flights. We should learn from the Japanese nuclear crisis, not let it feed a political panic over nuclear power in general.”
We have only five precedent nuclear accidents since 1950. In each case, the S&P 500’s median decline has averaged 5% over a period of 25 days.Even Chernobyl saw a 5% market decline.

According to additional research by JPMorgan, the greatest long-term fallout would be a drop in the value of financial markets, which can create an economic drag. For example, every 100 point drop in the S&P 500 removes $1 trillion dollars of household wealth, and reduces consumer consumption by 1.5%.

We’ve recently witnessed the enormous drag that a “negative wealth effect” has on consumer spending. When markets fell 50% two years ago, the loss in paper wealth created the worst recession since the 1970’s.

Here Comes M&A In A Big Way For Uranium Stocks

There is mounting evidence that the nuclear industry is heading into consolidation. Just recently, uranium producer Cameco (CCJ) signed a contract with China National Nuclear to supply the Chinese with 23 million pounds of uranium. To put this in perspective, Russia’s state-owned mining operation purchased Mantra Resources, paying almost $10 a pound for uranium in the ground!

Mantra controls a large deposit, but large is a relative term. Mantra should be able to produce 5 million pounds of uranium a year. China’s deal with Cameco provides the Chinese with almost five times as much production. Russia is not renewing its agreement to supply the U.S. with converted uranium, and other countries are looking to acquire, not sell. The Obama administration wants nuclear power, and other world leaders want it, too. Nuclear may be the only viable choice for clean energy.

About 30 percent of Japan’s energy came from its 54 nuclear power plants. They’ve shut down 11 nuke power facilities, creating an energy shortage. Until they rebuild, which may be several years, Japan needs non-nuclear fuels like oil, coal, and natural gas. Prices for these commodities are already rising in anticipation. Meanwhile, the cleanest, most reliable method for getting power will likely continue to be nuclear.

To read this article in full please click here.


Forbes logo 31 march 2011.JPG

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