A recent headline in the Financial Times confirms what we had been anticipating for some time: “China to Restart Nuclear Programme”
With an emerging markets push towards increased nuclear power, this is decidedly good news. It bodes well for uranium producers over the mid- to long-term. Chinese authorities undertook a hiatus to implement stringent safety standards in the wake of the Fukushima disaster. One of the main takeaways is that nuclear plants in China are now required to be built with “third generation”, or Gen III technology. This clearly was mandated in the name of safety and is good news for companies such as Toshiba and Areva who pioneered this technology, according to the FT. China plans on establishing 40GW of nuclear power capacity by 2015 – essentially two and a half years from now – which would be three times current production.
In other news concerning China “going nuclear,” Reuters reports that China Guangdong Nuclear successfully raised 1.5 bln yuan ($240 million USD) through a dim sum bond offering. The article states that the offering was four times oversubscribed – more evidence of the belief both inside and outside China of a renewed push towards nuclear power.
Aside from China, countries such as the UAE, Saudi Arabia, and Poland have all re-newed their commitment to nuclear power recently.
To be sure, there are threats to nuclear power including waste management/disposal, the boom in cheap shale gas, several countries threatening to phase out nuclear generated electricity, and the current low spot price of uranium rendering many projects un-economic. The U3O8 spot price stands currently at $46.50 per pound. While each of these concerns has credence, here is why we like uranium going forward:
Uranium as a Contrarian Play
The uranium story seems to be a favorable contrarian play: a sector absolutely essential to sustaining a high quality of life is beaten up by investors and left for dead with no short-term fix in place to account for a lack of nuclear generated electricity. One point in our Discovery Investing Factor Model concerns “contrarianness” or asking yourself the question of just how out of favor this company (or sector) is in the eyes of investors.
Whether you believe in the idea of a “nuclear renaissance” or not, the security of supply necessary for today’s global reactor fleet of 436 coupled with future demand for the 60 nuclear reactors under construction and the approximately 150 reactors planned is a key issue and should weigh heavily in one’s investment decision-making process regarding uranium. So the question then becomes one of selecting companies positioned to aid in this resurgence.
A Promising Junior with Muscle Behind It
We have written in the past on European Uranium Resources (EUU:TSXV) and continue to believe that this company is well-placed to participate in the potential upswing in uranium juniors. The company holds a high grade-uranium asset in Slovakia (28.5 million lbs of U3O8 Indicated (2.3 million tonnes @ 0.555% U3O8) and 12.7 million lbs of U3O8 (3.1 million tonnes @ 0.185% U3O8) all at a 0.05% U cut-off) in addition to owning a stable of prospective properties in Finland and Sweden.