Do We Really Need Nuclear Power?

At dinner parties, it's easier to just not bring up the subject altogether because it tears people apart, and when it does bring people together it's definitely "not in my backyard."

Killer questions
All businesses should ask— why do we exist, why do we deserve to exist, does the world need us, would anyone miss us? Try bringing those up at your next dinner party!

These types of questions are at the heart of conscious capitalism; when answered and implemented they can lead to long-term success for any business. I would love to know if the executives (Mr. Tim Gitzel) and team at Cameco (NYSE: CCJ  ) have considered these killer questions. How will they position long-term to survive in an industry that many would like to see dead?

Love it or hate it
Uranium is the fuel that burns in 104 nuclear reactors across 31 states. While we might think we could do without, these plants have generated about 20% of Americans' electricity each year since 1990. We all love our electricity -- we can agree on that right?

Mr. Market has experienced fallin' in and out of love with uranium stocks. Cameco used to be his favorite -- it was like the brand name of U308 (slang for uranium). With about 14% of the world's mine production, it is pretty well known in the uranium world. Not only is it the largest supplier to the United States, it has about 465 million pounds of proven and probable reserves throughout the world to back it up (that's a lot). Through Bruce Power LP, Cameco has a stake in the downstream end as well. Perhaps supplying electricity throughout Ontario is another part of its reason for being.

Industry power players
Looking to invest in companies taking market share in electricity generation? Solar technology is on a curve where costs will continue to decline as efficiency increases (that's a winning combo). I can imagine an abundant future where solar and other renewables are dominant sources of energy. Until then, world economies will continue to rely on fossil fuels and uranium to make up the difference. Love it or hate it, nuclear power is here to stay for the foreseeable future. Of late, eight companies marketed 88% of the world's uranium production. You already know Cameco; the other two worth knowing are France-based AREVA and Rio Tinto plc (NYSE: RIO  ) .

As of 2012, AREVA owned stakes in four of the largest mines and supplied 15% of global production. Cigar Lake (50% Cameco / 37% AREVA) is a huge facility in Saskatchewan that is expected to go live in 2014. At full capacity it could produce 18 million pounds of U308 per year. Rio Tinto has 9% market share, and its ERA mine (Australia) and Rossing mine (Namibia) are two of the largest open pit mines on the planet.

Last year, Cameco and Rio Tinto had somewhat of a bidding war for Hathor Exploration, a company with assets in the coveted Athabasca Basin (the Saudi Arabia of uranium?). Rio Tinto paid $578 million for approximately 58 million pounds of indicated resources located 12 km southeast of Cameco's McArthur River mine, so quality uranium deposits can be worth a nice chunk of change. 

Are there catalysts for growth?
Spot prices of uranium, around $35 per pound, have steadily declined since December 2010. Post-Fukushima, 14 nuclear reactors have remained shut down in Japan, and there were other sporadic closures worldwide. The Japanese market used around 20 million pounds U308 annually. Their regulatory body is currently in review mode (for five months now?), weighing the possibilities of a restart. Cameco will be meeting with the executives of the closed plants, hoping to firm up relationships and commitments ahead of a decision.

Though these things don't happen overnight, there are currently 69 nuclear reactors under construction -- 30 of them are in China. In addition, consumption has been outpacing supply for quite some time, if demand continues at current levels that trend is not sustainable.

Source: Cameco Investor Presentation

Really, it's all about electricity demand...
It's doubtful that any uranium related companies would be allowed in a "socially responsible" portfolio. If the world is better off without nuclear power, buying stock in uranium could contribute (in some small way) to its continued use. While it may be a quality company, I wouldn't buy AREVA unless it was directly overseas (OTC listing is too illiquid). Rio Tinto provides exposure to other commodities like diamonds, iron ore, and aluminum (more diversified). If you want straight uranium, Cameco is the name.

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Read/Post Comments (5) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2013, at 6:10 AM, Paxus wrote:

    Why take on all this unsystematic risk? Uranium is at it's lowest price in 5 years. There are not 104 reactors in the US anymore it is down to only 100 this year, [Units 2 and 3 at San Onofre and Kewaunee and Crystal River all closed in 2013] Nor do they make 20% of the electricity in the US any more and it will shrink further. There are 50 reactors closed in Japan, it is unclear how many will come back on line. Germany is closing all its reactors.

    But most importantly, if you buy an uranium pure play, another accident and you may never recover the value of your investment. And an accident is just as far away as a bad rain storm.

    http://funologist.org/2012/03/10/more-important-that-fukushi...

    Or the next NRC deception

    http://funologist.org/2012/10/20/nrc-hides-information-about...

  • Report this Comment On November 05, 2013, at 12:08 PM, GRLCowan wrote:

    It is certain that uranium related companies would be allowed in a socially responsible portfolio.

    If the world were better off without nuclear power, buying stock in uranium could contribute (in some small way) to its continued use ... but in the next 50 years, the more nuclear power the world can get, the better off it will be.

    Learn from Greenpeace: https://www.dropbox.com/s/o6mrb62bfe8seww/uww.jpg

  • Report this Comment On November 08, 2013, at 12:09 AM, dliles wrote:

    We most certainly do need nuclear reactors. The large reactors are a difficult investment due to the large cost of a single unit. Small modular reactors (SMRs) allow the same investment to be spread over several units. Several companies are developing SMRs.

    Japan already realizes the need for nuclear power and will eventually bring the reactors back on the line.

    http://energy.gov/ne/nuclear-reactor-technologies/small-modu...

    http://www.world-nuclear.org/info/Country-Profiles/Countries...

  • Report this Comment On November 22, 2013, at 12:48 PM, HoosierRube wrote:

    Progress cannot occur if fear prevents you from getting out of bed in the morning.

    There would have been no moon landing if risk were the only consideration. And indeed, there would be little accomplishments of anything.

    You will never solve an issue by running away from it. There would be no technical advances in automobiles if they were abandoned due to the risk of death they bring with their use.

    Some people play with numbers to promote their agenda. For example, they may point out the closure of old plants yet are remiss in mentioning the new plant(s) being built.

    They may point at Germany but fail to mention that they are just as dependent on nuclear energy as they have only outsourced it to France at much higher costs.

    Or they may neglect speaking towards the 70 - 100 plants currently under construction around the world. Or the many hundreds of plants in the planning stage.

    And they surly neglect talking about the advances in technology that go to the heart of solving the issues we have with nuclear power.

    And they neglect to talk about the failures of the alternatives.

    Remember, there are lies, damn lies and statistics.

  • Report this Comment On November 22, 2013, at 1:49 PM, NOTvuffett wrote:

    Just for sake of clarity, U3O8 refers to a chemical formula, not an isotope.

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