Uranium Stocks & Alternative EnergyOil is becoming a real pain lately. The price is rising and we rely on other countries to get it. And some of those locations are near war zones. This situation has opened up opportunities in uranium alternative energy stocks. The U.S. needs a Plan B. The current opinion of the world’s oil supply has two sides. One group of experts says we have enough to last us till Armageddon Day. And the other group says we don’t. The pessimistic view takes its cue from this: • The current oil supplies are overstated. An oil well ceases to remain economically productive when half its reserves are extracted from the ground. Advanced technology can help improve production, but it’s not enough to compensate and adds additional costs. • Most oil fields are in politically unstable parts of the world or controlled by cartels. • The demand for oil has outpaced supply and there doesn’t seem to be a balance in the future. Rapid growth in China and India are two major components. Alternative energy sources are the answer. These sources need to be cheaper, cleaner and not dependent upon from foreign sources. Lets talk nuclear power, ethanol, and solar.
How do make money with nuclear power? You buy uranium stocks. Uranium ore is processed till it becomes yellowcake. From there it becomes nuclear fuel. Nuclear fuel is recognized as a clean, scalable and less expensive source of energy. 16% of the world's energy comes from 441 nuclear power plants. It’s estimated by 2030 there will be over 2,600. Mining for uranium is an expensive and highly regulated process. It can take 5 – 10 years before a mine is operational. From an investor’s standpoint this is good news. Demand for uranium is growing at an increasing rate and current production will not keep up the pace.
Looking at this 2 year chart we see uranium prices peaked at $136 lb. during the summer. As of November 2007 we’re at $86 lb. What happened? The Department of Energy injected reserves to ease the spot shortages. This short term supply will not fulfill the demand that’s coming down the pipe. Nuclear power is one of the cleanest fuels on earth. And this may be the biggest selling point of all: Not one drop of uranium comes from the Middle East. What are some ways to make money with uranium stocks? • You can’t talk about energy without mentioning China. China has committed $50 billion for over 30 nuclear power plants. They plan to spend approximately $220 billion on uranium. That is huge. Look for well established uranium companies; especially the ones with ties to China.
• India will eventually bring 20 - 30 new reactors on-line and 75% of France's energy comes from nukes. • Directly related uranium stocks are correlated to uranium’s commodity price. A rising price in the commodity has an upward effect on the stocks. Larger diversified companies such as BHP Billiton (BHP) and Rio Tinto (RTP) include uranium as one of their mining and processing activities. These companies are safer diversifed long term plays. Cameco (CCJ) and USEC (USU) are larger companies in the more direct uranium play. These companies will have a more correlated move in response to uranium prices. Paladin, Dennison and SXR Uranium are smaller companies. From there are down, things get a bit more volatile.
Ok. So what have we learned about uranium in this brief overview? Barring a remake of The China Syndrome, uranium has a glowing future. This is a clean and practical energy source. Uranium is in abundance and doesn’t reside in politically unstable locations. Concerns are security, public perception, and the safe disposal of nuclear fuel rods. There are other alternative energy sources so uranium is not a clear cut winner. In terms of investments, it takes time to mine uranium and produce a high quality grade. Many of the lower priced stocks are thinly traded and inherently risky. Stick with larger, diversified companies such as those mentioned above. Bottom line: Keep your eye on the price of uranium. Put some quality companies on your watch list. Just say “Yes to nukes".
If it’s made from corn, what could be bad? Ethanol is processed so it can blend with petroleum diesel. As of now, all vehicles can operate on a mix of 10% ethanol and 90% gas. Ethanol makes up about 25% of all fuel sold in U.S. The government would like to see that percent go much higher. "Ethanol will replace gasoline consumption. The ethanol industry is on the move, and America is better off for it.” - President Bush. Mission accomplished.
Ethanol has a lot of things going for it. It’s green energy. America loves green. Bill Gates invested $84 million into Pacific Ethanol (PEIX) and to keep the money flowing, farmers that help produce ethanol receive a subsidy from the U.S. government.. It seemed ethanol had a lot going for it coming out of the gates. But the news seems to be turning against it. Here’s the chart for a promising ethanol company. PEIX.
Some of the negatives include: • Ethanol production is very energy intensive. Sometimes requiring more energy than it produces. In some parts of the country, water supplies are adversely affected. The process to grow the corm has strained surrounding water reserves. • To compensate farmers to stay in the corn business they must be subsided. That comes from a tax you pay on oil. The subsidies are estimated at $2 billion per year. • Production costs are high as ethanol requires fertilizer, pesticides and large tracts of land. You never know what the future will bring for this biofuel, but ethanol remains an important source of alternative energy. Archer-Daniels-Midland is the largest producer of ethanol.
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The White House runs on it. Why not you? You need photovoltaic cells to convert sunlight into electricity. These silicon chips are dropping in price making solar energy more affordable. Less than 1% of the country’s energy comes from the sun. And last but not least, lord knows how many solar panels you'll need to power a office building. Sun Power of California and SunTech of China are two companies to watch. Oil is not going back to $40 per barrel unless we make Saudi Arabia the 51st state. And the Middle East will never be as friendly as Canada. Alternative energies will be a necessity. The best way to approach this relatively uncharted territory is with proven profitable companies. If I had to take a guess, fundamentally strong companies with stakes in uranium look good. Until the future.
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