written by reader Having Our Yellowcake and Eating it Too: Paladin Energy

By lscherrer, December 28, 2011

Fukushima Daini proved that nuclear power is very safe.

That wasn’t a typo–Daini, not Daichi.

Fukushima Number One (Daichi) is the infamous reactor complex. Fukushima Number Two (Daini) is seven miles down the coast and was also hit by the earthquake and tsunami. (Please see this striking images of the tsunami at Daini: http://depletedcranium.com/dainipics.jpg )

Fukushima Daini is in cold shutdown with all reactors intact. The cooling systems were badly damaged by the tsunami but the backups worked. The biggest difference between the two complexes was the safer (and 10-year newer, Gen II) reactor and safety system designs at Daini.

The message from Fukushima Daichi is that older, poorly designed nuclear power plants may be unsafe around earthquakes and tsunamis. Newer designs are very safe when sited and designed properly, even under the extreme conditions of earthquake and tsunami.

That said, the fallout from Fukushima, both nuclear and political, has been staggering. As of December 2011 Japan has only 14% of its nuclear capacity online (although much of that is due to scheduled, albeit extended maintenance). Germany and Switzerland have renounced nuclear power and plan to phase it out completely. You could say it looks really bad for the future of nuclear power.

But wait. The World Nuclear Association says that pre-Fukushima there were 322 proposed new nuclear plants worldwide. Post-Fukushima there are only…343?? How could this possibly be? Because most governments still believe that when it comes to a reliable, clean, sustainable power supply, nuclear is without peer.

Environmental anathema? In a superficial analysis, absolutely, but serious environmentalists see a more complicated picture. “Love Your Monsters” is a collection of essays on post-environmentalism edited by Michael Schellenberger and Ted Nordhaus. In it the argument is made that “we should treat our technological creations as we would treat our children, with care and love, lest our abandonment of them turn them into monsters.” In other words we need to learn from our mistakes and endeavor to improve technology, not renounce it.

In practice that means Germany should be building new Gen III reactors to replace the older models they are shutting down. Their stated plans, though, are to replace nuclear with solar and wind. In reality, the power deficit will be made up by gas-fired plants (with gas imported from Russia and Poland) and imported French nuclear electricity.

Czech president Vaclav Klaus points out that the German decision directly affects its neighbors and will significantly increase Czech electricity costs. He ruefully commented at a German-Czech Economic Forum in Hamburg, ”Germans are normally rational people but I do not understand this…I consider this as a completely irrational, populist step from the German side. This is a sort of political helplessness and it annoys me a lot.”

Enough bloviating. What does this all mean for investors? It means that governments have already taken a logical, dispassionate look at 21st-century nuclear power and have, with two Teutonic exceptions, decided in its favor.

How do we invest in nuclear power? Utilities? (yawn) Engineering firms? (possibly, but this is a very long-term play in the US) Uranium miners?? Well that’s just crazy talk. Everyone knows how risky uranium production is.

Post-Fukushima many reactors are shut down, there is a global recession so less electrical power is needed. The Global X uranium ETF, which tracks uranium miners and producers is down 56% for the year. Spot prices for crudely purified yellow powdered uranium oxide (aka U308 or yellowcake) are down to $52/lb from a high of $73 last January.

How can this be a good time to invest in uranium? Two reasons.

First, paradoxically, Fukushima made the uranium supply outlook worse. Sure, currently there is incrementally more uranium available from reactors in shutdown, but low prices are suppressing exploration and new project growth. Once prices rise enough to encourage production, it will be years until those new mines come online.

Second, the Megatons to Megawatts program is scheduled to end in 2013. This program takes highly enriched uranium from Russian warheads and down-blends it for use in reactors and so far 12,500 tons of fuel have been produced. The looming problem (and opportunity for us) is that without this program there is a 25% deficit in the supply of reactor-grade uranium. Prices will surely rise in anticipation of this and nothing I have read suggests the Russians are likely to renew the program.

My favorite uranium producer is Paladin Energy (yes, I am a shareholder). It trades as PDN in Sydney and Toronto, and is very thinly traded in the US on the pink sheets as PALAY. Paladin has operating mines in Malawi and Namibia and has mines in Canada and Australia it plans to bring onl