No One Falls for Chinese Uranium Bluff

I awoke worlds away from world crisis hotspots like Japan and Libya in the northern Argentine province of Salta in the quaint town of Cafayate where I am checking out Doug Casey's "La Estancia de Cafayate" on behalf of subscribers.

Shaking off the cobwebs of one too many vino blancos from the night before the first headline to cross my screen stated "Safety Worries Shut Down China's Atomic Program".

My first instinct was, "here we go".  If China slows its push into nuclear, along with the German shutdowns and pressure in the UK and the US to halt further development, this could be all that is needed to destroy the uranium market and the producers/explorers of yellowcake.

I quickly checked the share price of the top uranium producers.  Cameco (NYSE: CCJ)?  Up at the market open (before closing 5% lower).  Denison (NYSE: DNN)?  Up 5%.

How could that be, I wondered.  But then it dawned on me.  Since when is the Chinese government so environmentally sensitive?  I've lived in places like Guangzhou where in 1996 I couldn't even see across the street for the smog.  And I was there again in 2006 when, during Chinese New Year and all the factories shutting down for a week one woman I saw came out of a restaurant, pointed to the sky in shock and started calling her friends out to come see.  What was it she saw?  The moon.  She hadn't seen it in years she told me.

The markets obviously thought the same thing.  China is a voracious consumer of energy and is building power plants of all types at an incredible pace just to keep up with their growth.   They are building two new coal plants every week and are building 27 of the 62 new nuclear plants under construction worldwide. China has even more on the drawing board, with longer-term plans to have 100 reactors as it expands its nuclear capacity from 10.8 gigawatts to 86GW by 2020.

So, based on an event in Japan which still, as of this moment, hasn't killed one person, the Chinese Government is going to halt all work on all nuclear plants?  I don't buy it... and neither did the market today.

If the market believed there was a real possibility of China halting its plans to build nearly 100 new reactors the uranium stocks would have plummetted by a minimum of 70% today.  Instead nearly all were up.

Nice try, ChinaGov.  It was a nice attempt to collapse the price of uranium producers in, what one can only assume, was a ruse to scoop up the companies at a massive discount, before announcing that they were going to move forward with their nuclear program.

But almost no one fell for it.

NO CHERNOBYL

Meanwhile, the world has had a few more days to digest what is going on in Japan at the Fukushima Daichii reactors and it is starting to look like fears may have been overdone.  This crisis still isn't over but the chances of a large amount of deaths resulting from a meltdown seem to be quite unlikely now.

“The key thing here is that this is not another Chernobyl,” said Ken Brockman, a former director of nuclear installation safety at the IAEA in Vienna. “Containment engineering has been vindicated. What has not been vindicated is the site engineering that put us on a path to accident.” 

That was the point we made in our last blog post.  This is more about the stupidity of placing numerous nuclear reactors on one of the most active fault systems in the world - and practically on the beach, no less - in a country where the word tsunami was invented.  Japan gets tsunamis like the Gulf of Mexico gets hurricanes.  They've had 195 recorded tsunamis in Japan.  Yet they still build their nuclear reactors right near the ocean.

The 40-year-old Fukushima plant, built in the 1970s when Japan’s first wave of nuclear construction began, stood up to the country’s worst earthquake on record March 11 only to have its power and back-up generators knocked out by the 7-meter tsunami that followed.

It could even be said that Fukushima is a testament to how difficult it is to have a problem at a nuclear reactor.  If you can build 40 year old nuclear reactors on top of a place which gets hit by a 8.9 earthquake and they still operate as designed, that really is a testament to the system.  Even the 7 meter tsunami did not cause the reactors to fail.  They only started to fail because the diesel generators used as backup power were taken offline by the tsunami.

Uranium Stocks are a Buy for Investors Willing to Take on Some Risk

Buying uranium stocks at this point in time can quite rightly be called a gamble.  There are just too many ongoing variables that could derail this train.

But for those who didn't hold any uranium stocks prior to the events in Japan, congratulations - you dodged a bullet.  And now you can buy these companies at 40-70% cheaper than you could have a few weeks ago.

If the events in Fukushima stay localized then this crisis will be long forgotten a few short months from now and the uranium stocks should return to prior levels or higher.

That old saying "to buy when the blood is in the streets" could not be more apt to the current situation.

Comments

[jackjack]

What a wonderful post! this is my first time i visit here.article!,I like very much!!Thanks for the sharing.Rolex Masterpiece swiss watches