Uranium $100+/Pound Needed to Satisfy Stealth Demand

Commodities / UraniumJan 25, 2013 - 09:35 AM

By: The_Energy_Report

What's the easiest way to track the ups and downs of energy markets? Watch what governments are doing rather than what they are saying, says S&A Resource Report Editor Matt Badiali. He has been watching behind-the-scenes nuclear energy importing in Germany and Japan and has concluded that the uranium market has hit bottom and is coming back up. What companies could benefit from these gyrations? He has an answer to that one in this Energy Report interview, plus some words of wisdom on U.S. oil and gas bottlenecks.

The Energy Report: In a recent piece for the S&A Resource Report titled "Government Lies and an Emerging Resource Opportunity," you said that statements by German and Japanese officials that they plan to be nuclear free in the next two decades were a cover-up for what they're really doing, which is importing nuclear power from other countries and secretly developing uranium supplies in former Soviet countries. How long can they hide these energy sources?

Matt Badiali: It's not a case of hiding them. In both cases, the governments are playing politics. In Germany, the government was reacting to negative press and in Japan, which had just experienced a serious natural disaster. The Japanese government told people for decades that nothing of that sort could ever happen, that the nuclear reactors were completely impervious to natural disasters. That put them in a position where if they tried to make any improvements, they would lose face. They backed themselves into a corner and the only solution seemed to be to turn off the reactors. But the reality is that Japan needs nuclear energy. Without it, liquefied natural gas (LNG) imports have soared and the country doesn't have the infrastructure to move it around. The result was a horrendous summer of spiking electricity prices and rolling brownouts; it was bad news.

Germany used the Fukushima disaster and the negative sentiment that followed to push through a carbon-free agenda. What is really ironic is that Germany is not in a place that gets earthquakes or tsunamis. It is not at any risk for that. It also isn't a place where solar power works really well. Turning off the nuclear plants leaves the country without adequate energy generation infrastructure, so they increased imports of electricity from France. However, over 75% of France's electricity is generated by nuclear power plants. So really all they did was outsource their nuclear reactors. At the same time, they brought on an enormous amount of coal power, which is the single-worst contributor of carbon dioxide. It was politics at its finest.

One company I was concerned about was Paladin Energy Ltd. (PDN:TSX; PDN:ASX). I told my readers that they should be very careful. It has some great assets and a long-term supply contract with one of the French utilities, but it's experienced some problems turning a profit. So going back to acquisitions, it might make sense for a big mining company to take over Paladin. It has a lot of debt. It's a $712 million ($712M) market value with $830M in debt. In addition, the company has $125M of convertible bonds coming due in two months, which will lead to converting up to 147M shares. That's a big dilution. This might be something for readers to look at down the road after these bonds convert. If the share price sinks below a significant point where the dilution's not going to hurt quite as badly, that could be a possibility. It may be that Paladin is worth a flyer for its assets after the dilution happens.

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