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Japan vs China Feud Will Secure Nuclear

Long ago, when I first purchased CCJ, in the midst of a nuclear reactor melting down on a coastline in the Pacific, I told you that there was more to this than the panic being cultivated by professional fire-alarm pullers.

And there were two primary reasons at that time which I gave. The first, and most obvious, of course, was that one does not just restructure the load production of a country’s power grid over night. Watching Japan struggle with prices as they import the coal needed to replace that energy has been an exercise in this concept.

Across the planet, other nations that declared their intentions to wean off nuclear energy are also realizing how difficult this task will actually be.

But the other main reason I gave why Japan, specifically, would not be divesting itself of nuclear assets was not economical. It was military.

Japan’s hardship is that it is an island nation with weak natural resources. And Her ancestral rival is a massive half a continent, sporting more than one billion people and rich natural resources just a short ship ride away.

In a peace time environment, Japan may have taken her sweet time (and much wasted money and hardship) restarting the nuclear energy program. The Japanese are a notoriously conservative culture, and if you have ever worked with a Japanese company, you know just what I mean by that.

But even Japan, with her slow, careful processions, has limits of patience.

Japan’s greatest threat is a blockade of supply routes. A steady flow of resources into the country is necessary to maintain it. These supply routes, not unlike the UK’s in World War 2, would prove a great headache and cause of domestic problems in a military conflict.

It’s bad enough importing food, goods, raw materials, munitions, etcetera. And having your nations power grid at the mercy of getting boats past enemy naval fleets is just one extra pitfall that Japanese military leadership will not want to deal with.

This was one of the main reasons Japan decided on the nuclear path years ago to begin with. A nuclear reactor carries enough fuel both active and in storage to supply full power for around 3 years.

Compare that to a coal plant, which under full load can require a delivery of about 15,000 tons of fuel a day. This approach requires a constant flow of fuel and also very large holding sites, both of which become attractive and hard to defend targets in wartime.

I bring this up because just recently, Japan’s leadership has reaffirmed the country’s commitment to safe nuclear power. A recent report from Cameco management issued guidance of a sizable fraction of Japan’s total nuclear assets beginning to come back online. This same report detailed that Cameco has observed Japan to be net buyers of nuclear fuel at this point in time.

This should be seen as reducing the uncertainty surrounding Japan’s fuel assets. One of the many worries supplying downward pressure on nuclear spot price has been that Japanese utilities may begin selling off unused fuel. This does not seem to be the case.

In the same presentation, Cameco also reassured audience members that Cameco will not be entering into any long term fuel contracts at these prices, which Cameco considers unreasonable. They are waiting for the market to set rates higher, and have instead dedicated themselves to shoring up the balance sheet and controlling costs to bide the time.

For the moment, the uranium market remains cold. But Cameco is committed to outlasting the cold spell. I remain very excited in the prospects of CCJ, and it remains my largest position at this time.

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Prices For Cameco’s Uranium Went Up…

Read this closely:

On an adjusted basis, our earnings this quarter were $61 million ($0.15 per share diluted) compared to $31 million ($0.08 per share diluted) (see non-IFRS measure) in the second quarter of 2012, mainly due to:

•higher earnings from our uranium business based on higher realized prices and increased sales volumes

…(other reasons listed)

This may be all I needed to see. The uranium market, being a low volume, old school brokerage operation, is an insane place. Opague as concrete, and getting quotes isn’t much different than trying to swim through said material.

I have been a little concerned, since uranium prices in the main broker-dealer I follow have just been collapsing.

But URA seems to have bottomed, and indicated prices as increasing. So what’s real?

Well, I can assure you, I don’t care what “uranium prices” are “really” doing. Because Cameco is living in CCJ land, where prices are higher. Lower uranium bids seem to be predominantly an phenomenon effecting small, POS miners.

Sure, you can buy long term uranium contracts really cheap from a URRE, a UEC, or a USU. You can also take on the very real counterparty risk that they won’t be around in another two years to make good on those contracts.

But if you don’t feel like taking long gambles on companies scrambling into deadend, horrible supply deals to stave off bankruptcy, you’re going to pay real rates to CCJ.

I still need to look through their filing closely – there were a few things that stuck out to me briefly as mild concerns, when I did a once over. They still have a ton of currency hedges in place, that probably expose them to all sorts of potential losses, and I’m curious about how the NUKEM deal is working out.

Also, the company has promised to cut expenses by 10%. This is just one of many elements that bares scrutiny and inspection.

But the fact that Cameco could sell uranium for higher prices in this market is astounding.

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