By: The Energy Report and Jeb Handwerger
Source: Peter Byrne of The Energy Report
Pundits may have closed the book on the so-called nuclear renaissance, but the story is far from over. In this exclusive interview with The Energy Report, Gold Stock Trades Editor Jeb Handwerger suggests that a new generation of nuclear energy must be part of a diversified happy ending, but by that time, merger and acquisition activity may have already rewarded the investors who believed in a brighter future. Read on.
The Energy Report: Jeb, at the turn of 2012 you were bullish on junior uranium mining stocks. It's halfway through the year and a lot of these stocks have still underperformed. Is this the result of continued economic fallout after the Fukushima nuclear disaster, or perhaps a consequence of the availability of cheap natural gas?
Jeb Handwerger: We had a really difficult year for uranium equities in the aftermath of both Fukushima and the end of QE2. The whole resource sector went, and uranium was hit extra hard. However, we are beginning to see a notable improvement in the supply-and-demand fundamentals with more institutional investor interest in uranium. It seems that the bottom we predicted in uranium miners in late 2011 is still holding. Compare that to the gold miners' ETF, which is down 17% and to the rare earths ETF, which is down about 12%. The uranium ETF is down only 10%. That shows me that uranium miners are relatively strong in a weak, panic-driven natural resource market where investors are hoarding cash and treasuries.
TER: So what's breathing life into the uranium sector now?
JH: In 2011, nuclear energy had a lot of competitors from alternative energy sources such as solar, wind and natural gas. Since then, the challenges for each of these sources have become more apparent and the entire energy sector has undergone an outright selloff. A lot of articles have talked about cheap natural gas taking the place of nuclear. What the pundits don't say is that natural gas has plenty of its own issues, ranging from the environmental downsides of hydraulic fracturing to greenhouse gas emissions. Furthermore, service stations and natural gas liquefaction plants must be set up along the chain of supply from mine to consumer. Major costs are involved and there is no assurance that the price of natural gas will remain at these low levels. Plus, some parts of the world don't have abundant natural gas. The cost of liquefying it and shipping it can be extravagant. Japan, for instance, tried importing natural gas, but eventually gave up and recently reactivated nuclear plants amid growing fears of power outages affecting industry.
The short position in nuclear miners has increased even as money is being directed toward construction of new nuclear power plants globally. The shorts use the stories of cheap natural gas to depress the uranium sector. This means uranium miners may even have additional upside because of the large short position that may soon have to run for cover in the event of a turnaround. We have seen short covering rallies before in the uranium miners. In the summer of 2010, after QE2 was announced, the sector experienced major gains. The same was true in 2007/2008 before the credit crisis. We saw a huge exponential move. These moves came out of nowhere and were very powerful, with miners moving up 10–20% a day.
We must not tar nuclear energy with the broad brush of the entire resource sector malaise. Construction of new nuclear plants proceeds steadily and the media is not emphasizing that. The U.S., for the first time in three decades, announced the approval of plans for nuclear reactors in Georgia and South Carolina. Even Japan is reactivating nuclear reactors. India and China are moving full speed ahead, and this alone will require an additional 40 million pounds (40 Mlb) of uranium annually by the end of this decade. We must remember that the underperformance right now in junior uranium miners is transient. Nuclear power is here to stay. All energy sources have their own sets of cost and environmental issues. No one source can fulfill everyone's needs for the next 30 years. Nuclear will always be part of the long-term energy mix, and when the market turns, long-term uranium investors have the potential to experience exponential profits.
TER: Japan's Fukushima Nuclear Accident Independent Investigation Commission published its report on the 2011 accident. It largely blamed the Tokyo Electric Power Co. operators for administration and operational failures. What did these findings mean for the future of nuclear power in Japan and around the world?
JH: Many countries are still stuck with the old, 40-year-old nuclear reactors, which is what Fukushima was. A renaissance has since occurred in nuclear engineering. The next generation of reactors has a fraction of the risks involved with the old reactors. That is what is being built in China, India and Russia. Even Saudi Arabia has 16 plants under serious consideration. Four are in the works in the United States.
TER: With an increased demand for uranium, where will the supply come from? The large producers will probably deliver, but will the explorers eventually benefit as they find the fuel for the future? From an investment point of view, what is the best way to capitalize on this coming trend? Is it through the big companies or the juniors?
JH:If you are looking to leverage the sector, a good way to play it might be to find a suitable candidate for the major uranium miners, many of which are trading at one-tenth of that value right now. That is why we are specifically looking at areas that are in mining-friendly jurisdictions where the majors are going to be looking to develop economic resources. The undervaluation of quality uranium miners is creating a possible once-in-a-lifetime buying opportunity.
TER: Are you looking at any uranium companies in Europe?
JH: Yes. Overall, Europe and the Americas are much better mining pictures than Africa and Australia right now. Rising resource nationalism in Africa and rising costs in Australia make these other stories much more attractive.
TER: So, is the overarching story mergers and acquisitions?
JH: I think so. There is going to be a dramatic change of landscape in the uranium sector. As the high-quality juniors come closer to production, they'll be taken over by the majors. We saw the beginnings of that in 2011 and we will see it continue. One needs patience and fortitude and the ability to go against the consensus.
TER: Thank you for your time and your insights, Jeb.
JH: Thank you.
Gold Stock Trades Editor Jeb Handwerger is a stock analyst and best-selling writer who's syndicated internationally and known throughout the financial industry for accurate, in depth and timely analysis of the general markets, particularly as they relate to the rare earths, precious metals and, nuclear sectors. He studied engineering and mathematics and received his undergraduate degree from University of Buffalo and a masters degree from Nova Southeastern the University in Fort Lauderdale. Teaching technical analysis to professionals in South Florida for some seven years, Handwerger began a daily newsletter that grew to become Gold Stock Trades: Mining for Winners in Any Market, with thousands of readers from more than 40 nations who are interested in the North American resource markets. Click Here to subscribe to his free newsletter.
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-- Posted Friday, July 20 2012 | Digg This Article |
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