March 6, 2006
The Daily Reckoning PRESENTS: Most people
are in the dark when it comes to nuclear energy, and
all this talk of uranium enrichment programs leaves
people scratching their heads. Well, never fear, Kevin
Kerr will do his best to explain the uranium markets...
The Uranium market is one that is like
a wild roller coaster, and many of the equities associated
with it can make investors queasy from the ride. These
equities are no different from many mining stocks; they
have to be looked at very closely. Uranium trading was
starting to become more stable, or so it seemed. Then,
just as fast as it calmed down - bam! - it went right
back up. In two the uranium price surged $5 to $29 in
just two weeks last year.
After the market woke up and new buying
came in, the ultra-precious metal's price climbed another
$4, which set the highest uranium price since the early
1980s. The new speculation was triggered by growing
expectations that China,
were planning to build new reactors and more reactors
would cause a run on the limited supply of uranium.
This speculation may well be right, if the International
Atomic Energy Agency (IAEA) stats are even close to
According to a report by the IAEA, 130
new nuclear power plants may be built in the next 15
years. Who are the big players? The usual suspects,
of course: China,
etc. Nuclear power provides about 16% of the planet's
total annual electricity generation and 34% of the European
Union's needs. Trust me, they need it - a lot. When
my wife Katrin and I were in Estonia
recently, it was frigid cold. Likewise, people are freezing
to death in Moscow,
right now. Nuclear power is a key component to economic
survival in both Eastern Europe
and the European Union.
I couldn't believe some of the stats for
other countries that I found in a great nuclear energy
report called Uraniumletter International:
Announced that it plans to build up to 40 nuclear reactors
within the next 15 years. Some experts feel this will
increase the amount of electricity generated by nuclear
power from 2.4% to 4%.
Also getting aggressive and wants to increase mining
of uranium ore at four mines, including the existing
Jaduguda mine in Jharkhand. The country recently signed
a nuclear energy agreement with the United
States and could generate
40,000 megawatts of nuclear power in the next 10 years,
compared with current production of 3,120 megawatts.
Receives 78% of its electricity from nuclear power.
Gets almost 56% of its power from nuclear plants.
Close to 50% of Sweden's
power is nuclear.
and the United
States: Nuclear power
provides 40%, 25% and 20%, respectively.
Currently uses about 40%, operating on 19 nuclear reactors,
and is expected to increase its dependence on nuclear
power up to 60% in three decades.
Nuclear energy is becoming more and more vital to the
growing economies. Without it, Asia's
bazillion factories would come to a grinding halt.
I'm not a historical scholar by any stretch,
but I am a big history buff and the he history of atomic
energy fascinates me. In the 1940s, the U.S.
government began buying large amounts of uranium in
the effort to produce the world's first atomic bomb.
I mean, a country didn't simply go down
to Wal-Mart in those days and buy some. So, it was a
major undertaking. Don't laugh, maybe someday we will
all have little nuclear reactors in our backyards, and
instead of going to get some more wood for the fireplace,
you’ll have to run to Wal-Mart to get a bag of
Nuclear power plants, as we know them,
fired up in 1959. That was when the first privately
funded nuclear energy plant came on-line, in Illinois.
Fast-forward, and by the 1970s that number had exploded
(pardon the pun) to 250 nuclear reactors that were planned
across the United States - but the dream train of cheap,
easy energy derailed a bit.
The disaster in Pennsylvania
changed all that. I was just a kid, but I remember that
accident. Three Mile Island
was a nightmare. My wife Katrin was just a kid when
happened. She lived in nearby Estonia.
They had to stay inside for days, she told me.
Anyway, the Three
Mile Island nuclear power plant accident
came close to Armageddon in 1979. Remember that movie?
The China Syndrome? In the movie, Jack Lemmon works
in a nuclear power plant that is going to have a meltdown.
This movie is the kind of hysteria that made the public
fear nuclear energy, and basically put the brakes on
new construction. People didn't want it near their homes,
and I can't say I blame them.
Public ignorance and fear of nuclear power
changed the course of nuclear energy, as we’ve
known, it for a very long time. Starting in the 1980s,
utilities were canceling plants hand over fist. This
resulted in the almost complete collapse of the uranium
And then, to beat down the market even
further, uranium got hit square in the jaw. This second
blow came when the Soviet Union
fell apart in 1991. Enriched uranium that was removed
from Russian bombs was blended down to reactor-grade
fuel and put on the market. But, it gets worse.
The third punch came when the Clinton
administration dumped 55 million pounds of "yellowcake"
(uranium in the form of a yellowish powder) on the market,
via a government-owned uranium enrichment program. This
was what really caused the freefall for uranium prices
- until now.
American uranium production peaked in
1980 at 43.7 million pounds, according to the U.S. Energy
Information Administration. That was the proverbial
nail in the coffin for the exploration of uranium. New
research and development ground to a halt, as mines
could no longer afford to operate, and exploration was
basically a waste of time, energy and money. According
to Uraniumletter International, Wyoming
once had eight uranium operations, which produced 12
million pounds per year. Today, things are different
- a lot different. Wyoming
now has none. Ouch!
I could go through each state and many
countries around the world and cite examples just like
that from reports I have read. It seems clear that because
of these widespread shutdowns, the once-overflowing
uranium supply dwindled in just five to 10 years.
Things didn't seem so bad during the 1990s;
the lack of new supply from functioning mines has been
supported by other sources. There were excess inventories,
for example, and there was also the dismantling and
recycling of nuclear weapons, especially from Russia.
Also, reprocessed reactor fuel was added to the mix.
But many of those quick fixes are no longer
The president's State of the Union address
was a rallying cry to uranium producers to get moving...finally,
reality is setting in. The dwindling supply of oil and
spiraling high prices of fossil fuels are driving interest
in nuclear energy as the possible power source that
will be used to meet current and future global demand.
Three Mile Island and Chernobyl,
unless you lived there, of course, are distant memories
to most Europeans and Americans. On their minds are
the prices at the pumps and their home heating bills.
Bottom line: New supplies of uranium will
come at a much higher cost, which in turn, will continue
to put upward pressure on the future price of uranium.
for The Daily Reckoning
P.S. My co-editor at Outstanding
Investments, Justice Litle, is looking at many of these
uranium companies. After all, there's no use in building
a reactor if you don't have the fuel to make it work.
Justice is in charge of the
Outstanding Investments portfolio, and he is doing a
fantastic job. He has already recommended great uranium
stocks that he’s had his eagle eye on, and I think
there are more to come. For a sneak peek at these stocks,
see our new special report:
The Four Horsemen of
Editor's Note: With 15 years of experience, Kevin
Kerr is a true veteran of the commodities markets. A
licensed commodities trader since 1989, he's worked
the trading pits in Chicago
and New York with legends
like Paul Tudor Jones, and he's even traded commodity
derivatives in London.
Over Kevin Kerr's career he's dealt with everything
from cotton to currencies to oil and natural gas.
If you take a look at Kevin's track record with
his commodities trading service, Resource Trader Alert,
you'll see for yourself that he is no stranger to the
natural resource markets:
Get Rich Trading Real Resources
Kevin Kerr is a regular
contributor to news outlets like CNN, FOX News, CBS Evening News,
Nightly Business Report and many others. Kevin is heard weekly on radio
stations throughout the country and he is also weekly columnist with
Dow Jones MarketWatch, where he's been quoted almost daily since 1999.
As editor of Resource
Trader Alert, he uses his extensive knowledge and connections to
uncover blockbuster natural resource investments - everything in the
world of commodities using options on futures and occasionally resource