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Banking on Alternative Energy: Part II


If I'm right, the price of uranium, which fuels nuclear power plants, will no longer be energy's best kept secret.

Check out Banking On Alternative Energy: Part I.

Two weeks after "The China Syndrome" starring Jane Fonda and Jack Lemmon in 1979, a fictional tale of a nuclear disaster – we had a real one, Three Mile Island. What you don't hear about as often is that the disaster was a terrific success story for its engineering. The containment structure performed exactly as designed, preventing radiation from entering the environment. Chernobyl, by contrast, did NOT have a containment vessel causing its very real problems. The only nuclear accident in the history of the United States resulted in exactly zero deaths which severely contradicts the public's perception and therefore what their politicians echo: We like movies more than facts.

There are literally thousands of coal-mining deaths every year around the world by comparison. Yet it is highly likely the computer you're reading this on right now is running on electricity from a coal-fired plant, not a nuclear plant. I had Montgomery Burns, head of Springfield's nuclear plant, a.k.a. Homer Simpson's boss, on my radio show last week (the producer does his voice perfectly) to update us on his thoughts. Burns on those nuclear fears: "Oh, meltdown…it's one of those annoying 'buzzwords.' We prefer to call it an unrequested fission surplus."

There are 103 nuclear reactors spread across the U.S. right now. These clean burning plants effectively prevent CO2 emissions that would equate to eliminating over 100 million cars. Every year! I got a few of these numbers from Patrick Moore, the co-founder of Greenpeace who, after 30 years, decided to change his mind about nuclear energy. My hunch is that others will follow and eventually the much better safety record and the production of zero greenhouse gases will be even more compelling than Fonda and Lemmon almost thirty years ago. Even if Burns and I are not supported here in the U.S., it will not matter. Much of rest of the world does not have time to argue about nuclear plants for the next ten years like we will. They are too busy building them and planning hundreds more.

If I'm right, the price of uranium, which fuels nuclear power plants, will no longer be energy's best kept secret. For all the focus on the explosive price of crude oil over the past few years, a surprisingly few people know the price of uranium is up even more, from $10 to $55 a pound.

According to the International Energy Agency, the "Levelized Cost per Megawatt Hour" calculating the cost over the life of a plant - nuclear power is cheaper than both coal and natural gas, and far cheaper than solar and micro-hydro.

So where's the trade? Hoarding uranium in your basement may raise a few eyebrows attached to guys who may not be interested in hearing my story while you're getting shoved into the back of black Suburbans. So instead of raising your right hand, let's lower it and start drawing. One of my firm's favorite exercises is to find the homes of natural resources whose supply is shorter than its demand and then to draw circles around them on the map. I want to know everything about the area. I want to find contacts in the area who will lead me to more ideas by foot than an analyst in New York ever could by phone. Then I want to bank them.

One of the first money managers I studied owned all these little banks I had never heard of. Each bank was in a tiny town that was home for energy companies in Texas, Louisiana, and Oklahoma, whose workers did not care about the economy or interest rates. They certainly did not want to hear about mutual funds. They wanted to deposit their paycheck in a bank. I never forgot that exercise he built a career on. What if you did the same for uranium? You'd have an even more focused list. Two homes for the majority of the world's uranium are Canada and Australia. Two friendly countries with natural resources for energy are even rarer still. Get a map, start looking, and draw some of your own circles and conclusions.

I will share some of the potential names you will find in or near the circles for consideration. None of these are recommendations. My firm currently only owns two and they have been core positions for us, not timely trades, and they are disclosed below. I have simply shared some of the ideas that can be traded in U.S. markets, where you do not need foreign security accounts or futures accounts. Additionally, I extended the circle for those interested in ETFs (from Barclays and Rydex) to include a few possible beneficiaries from the same search, including the underlying currencies which interest us a great deal as well.

In Australia

Australia & New Zealand Banking Group (ANZ)
National Australia Bank (NAB)
Westpac Banking (WBK)

iShares MSCI Australia Index (EWA)
CurrencyShares Australian Dollar (FXA)

In Canada

Royal Bank of Canada (RY)
Bank of Nova Scotia (BNS
Toronto Dominion Bank (TD)

iShares MSCI Canadian Index (EWC)
CurrencyShares Canadian (FXC)

There are at least two potential kickers to this story. Our good friend and MV Professor, McGuirk the Magnificent, would hasten to add that uranium ain't the only natural resource providing deposits to these banks. Mining gold and silver, he'd explain in a much more colorful way, are creating plenty of jobs and paychecks looking for banks as well.

Additionally, and an enormous event in the uranium industry, the world just lost its largest potential mine in a terrible flood at Cameco's (CCJ) most prized property in Canada. The hopeful response is that it can be back up and running in a year or two. I've heard from experts, however, there is a chance it's damaged beyond repair. This mine was estimated to produce as much as one-fifth of the entire world's supply of uranium in the near future. I think at a minimum this will make $55 per pound uranium look awfully cheap in a few years or sooner. And, it's going to provide even more jobs and paychecks to be deposited to help fix yet another energy problem. Bank on it.
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Positions in ANZ, RY, CCJ, GLD, SLV
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