Investing in Uranium

Nuclear Energy Infrastructure Suppliers: In order for nuclear power plants to generate electricity, they need reactors, nuclear fuel and support services. Given the sensitive nature of nuclear energy, the barriers of entry into this industry are formidable. Governments must first approve who can enter this industry, substantial expertise in this field is needed and billions of dollars in investments are required. The suppliers of nuclear energy infrastructure face little new competition.

Utilities Exchange Traded Funds (ETFs): For investors looking for diversification and exposure to the nuclear industry, utility exchange traded funds could be a viable investment option. These utility ETFs track the price of a basket of utility stocks. Some of these utility companies in the index have nuclear power plants. For the investor seeking income, these stocks do pay dividends. The management fees on ETFs are competitive, with most charging annual fees of no more than 0.50%.

Utilities Mutual Funds: Utilities mutual funds focus on investing in the utilities sector. Some of the utility companies include those with nuclear power generating plants. The managers running these funds are active investors who attempt to outperform the respective index. Most mutual funds hold at least fifteen companies, providing diversification for the investor. To judge the suitability of a utility mutual fund, the investor should review the fund manager’s investment style, the long-term performance of the fund and the annual fees charged.

How To Play The Nuclear Energy Renaissance

How To Play The Nuclear Energy Renaissance

To meet the greater electricity demand, nuclear plants are being built and more are planned. The need for a clean source of energy is essential for countries that plan to abide by the Kyoto Protocol. In the United States, 11 power companies have filed license applications that could result in 15 nuclear plants being built. In the rest of the developed world, countries plan to have more of its electricity generated from nuclear power plants. Over the next 15 years, China plans to build 40 nuclear power plants. To profit from this trend towards nuclear energy, here are some ideas:

The Uranium Producers: With all the nuclear power plants being built and more expected to come online, the long term prospects for uranium remains bright barring any major nuclear accidents. Furthermore, the supplies from recycled nuclear weapons and government stockpiles are being drawn down, adding to the bullish scenario. A direct way to get exposure to this sector is to invest in uranium producers.

For maximum leverage on this play, the investor wants to look at producers that are not hedging their production and/or is only a couple of years away from actual production. The corresponding percentage price movement of these stocks tends to be greater than that of the commodity itself. The investor also wants to see if the producer’s mines are located in politically stable environments. The countries with the world’s largest uranium reserves are Australia, Kazakhstan, Canada, the United States and South Africa. Other factors that the investor needs to look into include: management and their operating history, the amount of working capital available and their exploration and development program.

Uranium Exploration and Global Warming

Global Warming: Given the current political environment, a major issue is combating global warming. Global warming is the result of carbon dioxide emitting into the atmosphere caused by the burning of combustible fuel. This includes oil, coal and wood. Certain people believe that global warming is causing climate change. To decrease the effects of global warming, more clean-burning energy are needed. Nuclear energy is one of the few sources that have zero emissions, is economic and reliable. Compared to wind power, its turbines run only approximately 35% of the time.

A Steady Source Of Supply: The potential for most new oil and gas finds are located in politically unstable regions such as Africa and the Middle East. Furthermore, China is making inroads with these nations in securing supplies of oil and gas. Unlike the Western governments, China does not require economic and democratic reforms when doing business. With uranium, most of the reserves are found in politically stable countries. Australia, Canada and the United States have 42% of the world’s recoverable uranium. Australia and Canada account for approximately 50% of world uranium production.

Improved and Safer Technology: The new generation of nuclear reactors is safer than the ones currently in operation. The latest reactors have big tanks of water above them ready to dump water on the core if a problem arises. The older reactors rely on a network of pumps, valves and pipes operated by humans and electricity to channel water. The main challenge for the nuclear power industry is the disposing of waste. There is strong political resistance by population groups to having storage facilities near their towns or cities. Many experts believe nuclear waste requires a minimum of 100 years to become safe.

Competitive Costs: Yes, the construction costs of nuclear power plants are much higher than for coal or gas fired plants due to its greater complexities. Once up and running, the costs of running a nuclear power plant is not that much different and in many cases, lower than its fossil fuel burning power plants. If long-term forecasts hold true, the price of natural gas will be significantly higher. Coal, on the other hand, is expected to remain economically attractive in countries with plentiful and accessible domestic coal resources as long as carbon emissions are cost-free. Countries with sizeable coal deposits include Australia, China and the United States.

Uranium, What Is Old Is New Again

Is uranium the energy of the future? It seems what was old is new again. Back in the fifties, there was widespread optimism that the whole world would be powered by clean, plentiful and safe nuclear energy. We would even be driving nuclear powered vehicles. During the eighties and nineties, the atomic dream turned into a financial nightmare for those involved in the nuclear industry.

The nuclear mishaps of Three Mile Island and Chernobyl killed public demand for nuclear energy. Nobody wanted to be near nuclear power plants or have nuclear waste stored in their backyard. Furthermore, prices for conventional energy such as natural gas and oil were cheap and plentiful. In this environment, nuclear energy did not make financial sense.

Nuclear Energy Coming Back

During recent years, many developments had made nuclear energy become feasible again. Most industry analysts believe that nuclear power plants will generate an increasing share of the world’s electricity needs. The factors helping the case for nuclear energy are:

Rising Energy Demand: Global demand for energy in all forms is forecasted to grow 54 percent over the next two decades, according to the U.S. Energy Information Administration's long-term forecast to the year 2025. Oil consumption alone is expected to surge by 40 million barrels of oil per day during this period. Energy use in developing countries and the industrialized nations are expected to climb by 91 percent and 33 percent respectively over the next two decades. Thanks to their booming economies, China and India are expected to post the strongest growth in energy use.

Conventional energy production is not likely to match the growing energy demand. Alternative energy sources need to be developed. Wind power and solar power are so far proven to be uneconomical and expensive. Given its generating capacity and relative low costs, nuclear energy is expected to meet the world’s future power needs.