August 28, 2020
Why Uranium Is the Future…
in the World and in Your Portfolio
We didn’t need the nuclear meltdown survival pack… But I’m glad we had it.
Around 18 years ago, when my wife and I moved to Armenia – a former Soviet republic in a geographic Bermuda Triangle between Asia, the Middle East, and Europe – the U.S. government issued us an unusual welcome package: A cellophane bag containing a roll of duct tape, a few surgical masks (well before they became de rigueur in the Age of COVID), and a small bottle of iodine pills.
Uncle Sam handed out these “nuclear meltdown packs” to its employees in Armenia (my wife was an American diplomat at the time) because it was concerned about Metsamor, Armenia’s nuclear power plant. With typical Soviet attention to detail, Metsamor had been built on an earthquake fault, making it more susceptible to melt down if the earth’s tectonic plates shift beneath it. Worse, Metsamor didn’t have – and still doesn’t have – a primary containment structure, which is kind of like a medieval knight ready to joust clad only in his Spider-Man Underoos.
One study called the Metsamor reactor model the “least reliable” of all the 66 Soviet reactors built in Eastern Europe and the former Soviet Union. “Is Armenia’s Nuclear Plant the World’s Most Dangerous?” asked a BBC article in 2011. (Answer: You don’t want to know.) But given that Metsamor generates around 40% of Armenia’s power, and that it has no other options, closing down the plant hasn’t been an option.
So the U.S. government figured it would soothe the nerves of its employees with a baggie of anti-nuclear goodies. You might think duct tape would be as effective against a nuclear meltdown as using an umbrella in a tsunami would be… but actually it’s a decent start (I asked an expert… see my P.S. at the end). The good thing is that I never had to test it.
As it happened, living a few wind gusts away from Metsamor didn’t really bother me – maybe in part because it wasn’t my first time living in a nuclear shadow. Similar to a drummer’s son who charts his childhood by where his dad could get on stage, mine tracked the geography of nuclear power reactors: From Brownville, Nebraska (Cooper Nuclear Station), to from Harrisburg, Pennsylvania (pre-accident Three Mile Island) to Oak Harbor, Ohio (Davis-Besse), and Buchanan, New York (Indian Point), to Madrid, Spain (Trillo), and elsewhere.
I wasn’t a military brat… I was a nuclear power industry refugee.
Battered by crunchy Not In My Backyard! protestors, the coal and oil lobbies, and the occasional extinction-event nuclear meltdown, for decades the nuclear power industry was slowly shrinking.
As a result, my nuclear power engineer father followed the gig, family in tow. My dad would often bring home tabletop-sized blueprints of nuclear power plant safety systems. (“Aren’t these industrial secrets?” more than one houseguest asked of our scrap paper.) Our living room magazine stack included the latest issues of Nuclear News and something called (since renamed) Pumps and Valves. (“You sure you don’t want to read this?” my dad would ask me, and I still don’t know if he was kidding.) Dinner conversations would veer into the latest innovations in power plant safety technology.
Of course, in the same way that watching a few YouTube videos doesn’t qualify me as a viral epidemiologist, my nuclear-powered childhood didn’t turn me into an isotope expert. But it did give me a deep appreciation for nuclear energy… and for uranium, which today, from an investment perspective, is the RC Cola of energy sources.
Uranium has been a desperate underperformer for years. Since hitting a peak of just over $140 a pound in the summer of 2007, the trajectory has been mostly down. Today, a pound of uranium costs around $33.
But uranium has shown signs of life in recent months, with the price moving up by 32% in 2020 so far. Uranium’s rally has been largely overlooked in the blinding shine of the massive price jumps in silver (up 56%), gold (29%), and other commodities that are less radioactive.
And uranium is only going higher – and I’ll tell you why.
First, though, three nuclear myths that require busting…
1. Nuclear weapons and nuclear power are very different things. Yes, they use the same ingredient (uranium). But to tar nuclear power with the brush of nuclear arms is like blaming fiat currency for a gun that kills someone.
After the end of the Soviet Union, the U.S. government bought around 500 metric tons (that’s like 200 Hummers) of highly enriched uranium from the crumbling USSR, in part to keep it from falling into the hands of real-life Dr. Evils. This uranium from about 20,000 nuclear weapons was converted into power plant reactor fuel and used to supply around half of American nuclear reactors for 20 years. (As a result of the program, “One in 10 light bulbs in America was lit up by a former nuclear weapon pointing at you,” explained former deputy secretary of energy Daniel Poneman in January.) In addition to making electricity, nuclear reactors also provide radioisotopes that are used for medical diagnostic and treatment purposes.
2. Say it right. It’s pronounced “nu-clee-ar,” not “nu-q-lur.” (If you needed a reason to dislike George W. Bush, this is it. This is a dealbreaker issue for me… If I meet someone who mispronounces “nuclear,” I won’t let the door hit me on my way out… I want nothing to do with him. It’s toward the top of my red flag list, trailing “suspected serial killer” but ahead of “puts ketchup on steak.”)
3. It’s a lot safer than you might think. Nuclear energy is like air travel… popular perception of the safety of each is totally divorced from reality. Nuclear energy and flying are both way safer than their respective alternatives.
For example, despite what you might think, based on the if-it-bleeds-it-leads media, you’re about 100 times more likely to die (per mile traveled) in an auto accident than in a plane crash.
And it’s similar for nuclear power. The 2011 Fukushima Daiichi disaster? The official death toll of 573 people was entirely due to people who died in evacuation or due to displacement (just one worker later died of lung cancer) – not radiation.
One recent study found that the phase-out in Germany of nuclear power plants – in reaction to the Fukushima accident – in favor of coal-fired power has caused more than 1,000 additional deaths per year due to higher air pollution.
What isn’t a myth… Nuclear power can be difficult to understand if you’re not scientifically inclined. The Reader’s Digest version of how it works: Nuclear power is created by splitting atoms, which releases energy in the core (which is also called the nucleus… thus, nuclear power) of these atoms. This process, which is called nuclear fission, creates heat, and is directed toward something to cool it down – like water. The resultant steam (from the temperature of the water rising) is used to turn a turbine that’s connected to a generator… and, hey presto, electricity.
The atoms in question, of course, are uranium – which is processed and enriched once it’s out of the ground so that it can be used as fuel for nuclear reactors. Without uranium, there’s no nuclear power.
And that would be a problem. Today, nuclear power provides around 10% of the world’s electricity (about 20% in the U.S.). That’s about twice the combined contribution of solar and wind, according to the World Economic Forum. And unlike fossil fuels – which deliver more than three-quarters of the world’s energy – nuclear is completely carbon-free.
That matters because Mother Earth is choking on carbon. Nineteen of the 20 hottest years in history have taken place over the past two decades. A few months ago, it was more than 100 degrees within the Arctic Circle. Science says that fossil fuels are largely to blame. Even people who don’t believe in science are suffering the consequences… Just like the coronavirus is indifferent to people believing in facemasks, climate change happens regardless of anyone’s personal interpretations of science.
Meanwhile, global electricity will double over the next 30 years, as people in emerging countries acquire rich-country toys and habits. Today, the average person in China uses a bit more than one-third of the electricity consumption of someone in the United States… And the average Indian consumes one-tenth the electricity of an American. It’s only a question of time before people in China and India also buy fridges the size of walk-in closets, view long hot showers as a birthright, and keep the air conditioning running 24/7.
Put it all together, and it’s clear that nuclear energy must be a part of the earth’s future – because without it, the lights stop working. And in turn, that means that uranium is very much a part of the future.
The nuclear power industry takes a different approach to guessing at future demand by looking at how many nuclear power plants will be running. Last year, the World Nuclear Association estimated that total nuclear-generating capacity will increase by 16% by 2030, and by a total of 42% by 2040. Its more aggressive scenario calls for growth of around double those levels.
Some of that growth comes from nuclear power plants that are being upgraded to allow them to continue to generate power past their original anticipated lifespans, particularly in France and the U.S. But most of it comes from new nuclear power plants in – as you might have guessed – China (11 under construction) and India (7). In total, around 15 countries are at some stage of building nuclear power plants, including emerging markets like Bangladesh, Egypt, and Belarus.
What about supply? There’s a lot of uranium in the earth – 40 or so trillion tons of it – but only a tiny fraction of that can be economically mined. The Central Asian country of Kazakhstan accounts for about 40% of the world’s uranium viable production, followed by Canada (16%) and Australia (9%).
Problems in some of the biggest uranium mines in recent years have resulted in lower-than-anticipated production. More recently, COVID-19 restrictions have pressured production. In April, for example, Kazatomprom – the world’s biggest uranium producer – said that it was cutting its annual production forecast by an amount that’s equivalent to 8% of all the uranium mined in a single year.
That’s like if Procter & Gamble stopped making Charmin Ultra Strong (12% market share of the U.S. toilet paper market)… and for whatever reason, no other TP makers could plug the gap. In time, you’d see a surge in toilet paper prices, similar to what happened during the early-days coronavirus run on toilet paper.
But the most compelling reason for the price of uranium to rise stems from the strange ways that markets work. It costs miners about $60, including everything, to get a pound of uranium from the earth. But today they can sell it for only around $35 a pound… They lose a lot of money for every pound of uranium they produce. And as my friend and long-time natural resources investor Rick Rule says, only one of two things can happen next in such a scenario… Either the price of uranium goes up (and uranium miners don’t run out of cash), or the lights go out (that is, nuclear power plants don’t operate because they don’t have fuel).
Most of the time, a profit-focused endeavor that isn’t turning a profit ends pretty quickly. If I was spending more money on electricity to power my laptop and my cup of coffee to power me (a slight simplification of my all-in costs to write this article) than I earned from writing this – I’d have stopped writing about twenty paragraphs ago.
But mines can’t decommission (or relaunch) as easily, quickly, or cheaply as I can close my laptop and finish my grande triple-shot vanilla cappuccino. Mining companies are like supertankers trying to execute a slalom in the sea, given the enormous expense and complexity of getting a mine up and running – and of closing it down. One of the reasons that uranium miners are continuing to bleed red (“and try to make it up on volume,” Rick Rule jokes) is that the only thing worse than losing money is making none at all… and losing out on the opportunity to mint money when uranium prices eventually do recover.
And this is what they’re doing now… Barring another big nuclear accident that sets the nuclear power industry back a decade and shatters the price of uranium – about 15% of global uranium demand vanished when Japan idled its 54 nuclear reactors after the Fukushima Daiichi accident, and the price of uranium cratered 64% over the next few years – uranium is likely going to continue its secret rally.
The easiest way to invest in uranium is via a New York Stock Exchange-listed ETF, the Global X Uranium Fund (NYSE: URA). Its two biggest holdings, uranium giants Cameco and Kazatomprom, account for 40% of total assets. If the price of uranium continues to rise (it hit an all-time high of just over $140 a pound in 2007), the share prices of well-managed smaller uranium companies will rise a lot more than those two. But if you’re new to the sector and aren’t a professional natural resources investor, trying to pick the right uranium small cap is like, well, playing with plutonium.
P.S. Would my Metsamor nuclear meltdown survival kit have done any good if Armenia had started glowing green? I asked my dad, the nuclear power safety engineer, and he told me this…
The radioisotope [that is, the radioactive form of an element] of most concern is airborne I [iodine] 131 with a half-life of eight days. That it’s only eight days means that the danger from airborne radiation – which is the most serious in this case – will sharply decrease within a relatively short period of time. In the meantime, the safest place to be would be your own home. The ingestion of radionuclides [that is, an atom that has excess nuclear energy, which makes it unstable] can be minimized by reducing the air exchange between outside and inside air – thus the duct tape, to tape over gaps in windows and doors. If iodine is ingested, it goes to the thyroid gland, a critical organ. However, if iodine pills (which are not radioactive) are taken before breathing the radioactive iodine, the radioactive iodine will not be absorbed in the critical thyroid, and damage to the body reduced. The surgical masks can reduce the inhalation of radioactive iodine.)
In other words… it’s better than nothing. And with a lifetime of living in a nuclear shade, I like the odds.
Now here are some of the stories we’re reading…
The Dow just turned positive for 2020
The Dow is roaring higher Thursday after Federal Reserve Chairman Jerome Powell revealed the central bank’s new policy strategy, which will essentially keep interest rates lower for longer. Thanks to the boost, the Dow turned positive for the year for the first time since the pandemic hit.
The Inside Story Of Robinhood’s Billionaire Founders, Option Kid Cowboys And The Wall Street Sharks That Feed On Them
The perfect stock trading app for the videogame generation was supposed to “democratize finance” with zero-commission trades. But the primary plan was to get rich by selling customer trades to the market’s most notorious operators.
There’s a new coronavirus test that could help the U.S. get back to work and school
The test is about the size of a credit card, costs $5, and can deliver results in 15 minutes.
Born to the Internet, Grew Up Fast in a Pandemic
When traditional college jobs suddenly went away, these students used their ingenuity to find new ways to pay the bills.
And let us know what you’re reading at [email protected].
Chaos Chronicles Editor, American Consequences
With P.J. O’Rourke and the Editorial Staff
August 28, 2020