Uranium in Our Future

 | Feb 02, 2014 | 2:00 PM EST
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On March 11, 2011, a massive earthquake hit Japan. The earthquake and resulting tsunami were very powerful, killing 18,500 people, and they also damaged the nuclear reactor at Fukushima, and that resulted in a massive evacuation.

Fukushima, apparently, will take decades to clean up, as early attempts to contain the radiation have been ineffectual. Japan, which was already a little twitchy about nuclear power, elected to shut down nearly all of its nuclear generating capacity, switching to fossil fuels.

It is well known that Japan has virtually no energy resources of its own. It is forced to import nearly all of the oil and natural gas it consumes. The economic consequences of the earthquake are that Japan has turned its famously large trade surplus into a trade deficit. That is at least partially responsible for the performance of the yen over the last year and a half. The people in Japan know that importing all of their energy needs is not sustainable -- they will have to restart the nuclear power plants eventually.

And that's where uranium comes in. As it turns out, uranium is a tradable commodity just like cattle or wheat or anything else. In nature, it exists as uranium oxide, and it is present primarily in northern Saskatchewan and Kazakhstan. You mine it. Mining is the business of getting rocks out of the ground. I didn't know what uranium looked like, so I did a Google image search. It's just a greenish rock.

As it turns out, the price of uranium can be quite volatile. About five years ago, it was about $150/pound. Now it is about $35/pound. Other countries, such as Germany, shut down their reactors in sympathy with Japan. But here is the trade. In spite of all the shale discoveries, and in spite of how plentiful oil is, I suspect that fossil fuels are going to be insufficient to meet the planet's energy needs. China, in particular, will become a big user of nuclear power (partly because of pollution).

I've always been puzzled why some people have such a strong reaction against nuclear energy. It's cheap, it's plentiful, it doesn't emit carbon waste, storage of depleted fuel is annoying but not insurmountable, and it's eminently reliable. Well, the earthquake in Japan is obviously why people are fearful of it, but reactor technology and design are a lot better than they used to be. It's hard to sell puts on nuclear accidents, because you never know, but at least the widespread use of nuclear energy would put an end to the intolerable climate-change debate.

There aren't many ways to play uranium. I am long Cameco (CCJ), a Canadian uranium producer that has the largest market share in the world (about 16%). It is a big, liquid stock listed in the U.S. There are uranium ETFs, the Market Vectors Uranium and Nuclear Energy ETF (NLR) and the Global X Uranium ETF (URA), and those are also fine, but Cameco is sufficiently big and liquid that I am comfortable investing in the single stock. In any case, I did a cursory amount of research on Cameco, and it appears to be competently managed.

If aliens were watching from space, they would be a little puzzled by our behavior. We have a cheap, abundant, clean source of energy, and we continue to use the dirty, expensive one. My house gets electricity from a coal power plant. What year is this? The U.S. is probably not going to move on this, but elsewhere in the world, you can count on more nuclear capacity being built.

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