The Nuclear Solution
"You can swim all day in the Sea of Knowledge and still come out completely dry. Most people do." - Norman Juster
Over 50% of the world's supply of Uranium is located in just 3 countries, Australia 30%, Canada 14% and Kazakhstan 17%. Even though Australia has the world's largest reserves Canada produces the worlds most uranium accounting for 18% of total output.
Over the next 15 years China plans on building 40 additional nuclear plants (these numbers keep changing the thing to keep in mind is that they are going to keep building). China 's known uranium reserves stand at 77,000 tons; currently it consumes 1,650 tons a year. In 2020 this could increase to 8250 tons a year. Further more China has signed strategic deals with Kazakhstan and Canada. It is just a matter of time before it does so with Australia; currently Australia supplies China with significant quantities of uranium. Why are we spending time focusing on what China is doing? We have always stated that one must view the Chinese as advanced chess players; they plan for events decades in advance. Patience and discipline seem to be one of their key strengths and assets. Presently China has enough uranium to power their existing reactors for 46 years; think about that for a second. How many countries have managed to build up such huge reserves so fast; this action definitely indicates that these chaps like to plan for things way in advance. We are positive that they are going to make sure that they have enough uranium to feed the new plants they are building for at least 18 years without any interruption. Hence the bidding war will be left to the other nations. China must be building huge reserves of uranium for a reason; they probably foresee massive price swings in the future.
Consider the following facts
- Uranium prices have almost tripped since the start of 2004.
- It is projected that world's energy demand will increase by an additional 65% in approx 15 years. At this point in time the only solution that appears to have a chance of dealing with this increase is nuclear power plants; the only material able to power these plants is uranium.
- One pound of Uranium produces roughly the same energy as 37 barrels of oil or 8.9 tons of coal; the choice is all but obvious.
Technically speaking there is more than enough uranium out there to power all the stations that are going to be built. (Look at the chart towards the end of this article). The problem is that this uranium is in the ground and needs to be mined and at the moment there are not enough mines to produce all the uranium we need. Furthermore not enough money and resources are being dedicated to exploration and the opening up of new mines; another thing to remember is that it can take up to 2 years before a closed mine or a new mine becomes fully operational. Hence demand cannot be rapidly quenched even with the opening of 100's of new mines. It's for this reason we think that the long term out look for uranium is rather bright.
The race to build new nuclear plants to supply developing nations future electric needs is about to create a very explosive situation. It's no longer a matter of if but when this situation will go out of control; we do not have enough uranium above the ground to power current nuclear power plants. At present approx 50% of the demand is coming from reserve supplies (mostly the decommissioning of old nuclear war heads); imagine what will happen when all those new nuclear power plants come online. The tragedy here is that these plants can only operate on uranium and nothing else and so at some point in time these plants will have to do whatever it takes to get uranium or shut down. It's for this reason we have been taking position in certain stocks that we feel will benefit tremendously from this potentially huge disaster. One such stock already doubled in less than 3 months.
On a separate note there is plenty of Uranium in the ground; the problem is that it takes time for these new mines to come online. It can take up to two years for these mines to be fully operational. So far no major effort has been mounted to address this issue and demand already exceeds supply and the supply situation keeps getting worse with the passage of each day.
A few experts in the field have written articles about new and existing technologies (both non military and military) out there that can extract additional energy from spent nuclear fuel rods (some experts suggest that only about 20-30% of the potential energy has been extracted from these spent nuclear rods.); the problem is always the same companies take forever to implement new technologies. As of now very few companies have decided to implement these technologies and another issue to consider is the cost factor. Even if cost were not issue there is still going to be a lag time between deciding to implement and implementing these new technologies. All one needs to do is look at the coal sector; cleaner coal burning technologies exist which make new coal plants nearly as clean burning as natural gas plants. However there has been no mad rush to build new coal plants even though the USA has extremely huge reserves. The thing to keep in mind is that most disasters are actually preventable but history has clearly indicated that man does not believe in prevention but only in responding after such an event has taken place.
The graph below clearly indicates that there is actually an endless amount of uranium available in the Earths crust and in seawater; the main problem right now is the exorbitant cost factor. One day it might be economical to obtain uranium from these sources but not right now which means uranium still has the potential to move up significantly higher. Every market goes through a bullish phase, a bearish phase and bottoming phase; there is no exception to this rule. Uranium happens to be in the early stages of a bullish phase.
"A child-like man is not a man whose development has been arrested; on the contrary, he is a man who has given himself a chance of continuing to develop long after most adults have muffled themselves in the cocoon of middle-aged habit and convention." - Aldous Huxley 1894-1963, British Author