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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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Lingering Questions On The Uranium Market

The uranium space ripped to the upside today. It was led by URA as the specter of a uranium price bottom led speculators into the miners. Several of the smaller names doubled, and even Cameco experienced a 3% upside day.

The actual story is decidedly more complicated.

Uranium prices at a few of the brokers I keep tabs on have actually begun to crack lower. The reports are that 8 separate utilities arranged deals at low prices last week and threats of funding and fears of even lower offers led the small names to cave into demands and sign contracts.

This is why I have avoided small cap uranium miners, like foreigners in France around 1349.

What comes next depends. Fears surrounding Japanese policy could be taking root. If those are grounded, then we may have quite a bit of trouble on our hands. Any such trouble would be viewed, from my perspective, as a buying opportunity. However, a rehash into the $10-20’s would not be out of the question. At current demand and sales, I put CCJ at $13, roughly.

However, if Cameco and the other miners can band together, they may be able to strike back against the weak hands that are presently caving. Cameco is in the distinct advantage of controlling more than 20% of the global market. If they can leverage themselves, banding together some of the smaller survivors, they could create a strong floor, devouring the weak in the process at rock bottom prices.

Longer term, the uranium market remains ripe for picking. There are several trends I am seeing that could lead grid demand to pick up 10-20% just here at home, at minimum, over the next one to two decades, and no real positive supply growth to see yet. Couple that with continued demands from environmentally conscious politics to trend away carbon emitting fuels and the necessity of alternative energies like wind or solar to be supplemented with constant energy sources and a build out in nuclear power is an obvious go to.

Thus far, there is no word on Russia extending the HEU agreement. The moment will be dominated by Japan. The decade won’t care about Japan at all.

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