If the future of energy supply is going to lie with nuclear power as I and many others believe then it makes sense for appropriate businesses to invest in it.
One of the interesting areas is uranium enrichment - converting the raw material into fuel. That is a politically sensitive matter, as identical technology can be used to produce the "explosive" for atom bombs.
To avoid accusations they could end up supplying terrorists or maverick nations, I see both Urenco, the Dutch uranium company, and Areva (EPA:CEI), the French nuclear engineering giant, are building their new enrichment plants in the US.
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With uranium supplies from scrapped nuclear warheads and government stockpiles facing decline and demand rising for a new generation of atomic power stations 34 are under construction in 11 countries we can expect "a quantum leap in demand for mined uranium," suggests Elliott Gue, editor of The Energy Strategist.
He recommends investors avoid companies that "aren't even close to producing an ounce of uranium" and to "focus your attention on miners with actual proven production and the potential to ramp up output in coming years" such as
Cameco (TSE:CCO), the Canadian giant that produced close to 20 million lbs of uranium last year, or about 18% of the world mined supply. Gue says its 70%-owned MacArthur River mine in Saskatchewan, accounting for three-quarters of its output, "is the world's largest known high-grade reserve."
If the company is able to bring into production by 2011 as planned the 50%-owned Cigar Lake project water is a major problem, but grades go as high as an amazing 25% it will add 15 million lbs a year to global supply.
Much of the firm's output is sold at low prices under long-term commitments, but as those 'legacy' contracts expire, Cameco will be able to earn the much higher prices now prevalent on the world market.
Paladin Energy (ASX:PDN) is an Australian company whose assets are primarily in Africa. Its Langer Heinrich mine in Namibia plans to boost output from 3.7 million lbs this year to 6 million by 2012. Its Kayelekera project in Malawi is scheduled to come into production next year, with an eventual output target of 3.3 million. Both are very low-grade, very low-cost, operations.
Uranium One, (TSE:UUU), has stakes in three mines in Kazakhstan and one in South Africa. It produced 2 million lbs last year, plans to triple that next year as new mines come into production.
For the present, all uranium shares are suffering from the fall in uranium oxide prices to two-year lows. Investors fear that the coming global recession will cut the need for additional electricity generating capacity.
My own view is that those fears are overdone. It's unlikely that countries desperately needing power supplies that aren't dependent on important fossil fuels will delay construction of what are essentially long-term infrastructural plans.
This article was written by Martin Spring for On Target, a private newsletter on global strategy. Email Afrodyn@aol.com
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