16 March 2011

Uranium: follow-up

© Markets & Beyond
Uranium shares were hammered Monday and Tuesday following the nuclear crisis in Japan and its consequences in the world for the nuclear electricity generation as a whole.
This is chilling people (therefore politicians in the West) and, as for the Three Mills Island and Tchernobyl accidents, the anti-nuclear lobby is becoming more voiceful and media start to listen.
  • In India, the Minister (whoever he his) in charge of the nuclear industry said that the design of nuclear plants will need to be reviewed (Areva is building 2 there).
  • In France, ecologist are calling for a referendum within the next 2 years and undoubtedly they will use this for the local elections next week et the following
  • Gemany’s Merkel called for a 3 months moratorium on expanding the life of old nuclear plants.
Let’s pause and reflect. Beyond the weak links (Germany, Switzerland, probably some other Northern European countries and the Obama’s Administration), the leading nuclear countries reaffirmed their commitment to the nuclear industry (France, fast growing economies) – have they any sensible choice anyway. I even do not see Japan renouncing to the nuclear electricity. After all the Fukushima nuclear power station sustained the earth quake perfectly; it is the tsunami’s wave’s height that was higher than the plant was designed for and caused damages to the cooling system. In addition, from what I read (intox or reality?), the Fukushima reactors are from an old GE design (1960s…) much less robust than recent designs. As reported by the NYT:
“But the type of containment vessel and pressure suppression system used in the failing reactors at Japan's Fukushima Daiichi plant is physically less robust, and it has long been thought to be more susceptible to failure in an emergency than competing designs.”
The question I am asking myself is: what could replace nuclear energy in the 20 coming years to meet demand? I do not see any but (1) increasing the consumption of fossil fuel (coal and natural gas in particular - green energies will only represent a fraction a requirements), (2) a technological breakthrough or (3) a substantial reduction in demand. 
Today, (1) is the most likely alternative if the nuclear industry growth was to be phased down, which I do not expect but if the Japanese problems turn out to be a nuclear disaster; even so, I doubt China and other fast growing economies will stop their programs beyond rhetoric toward the population to alleviate their fears. In the West, it may be different in some countries, but I do not see the main nuclear ones to shift away from this source of energy (France not being the least).
If one believes my "optimistic" (realistic) view of the nuclear industry, the coming days may provide great opportunities to buy good uranium mining companies as well as others involved in the nuclear chain.
In any case, contracts are long term by nature and due to the time horizon from the start of building a plant to its completion, the collapse of uranium share prices (up to 50% in 48h for most junior and intermediate miners), including Cameco (-24% at its lowest Tuesday compared to Friday’s closing), the leading one, is unjustified in my opinion when compared to fundamentals.

Disclosure: This was written to my Partners at P&C on Monday and updated/completed Wednesday at Australia’s closing.


The New York Times: Experts Had Long Criticized Potential Weakness in Design of Stricken Reactor