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[cdn-nucl-l] Nuclear Revolution - in the making
Viva la revolution! but it sure is slow in coming ...
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Sent: Thursday, November 04, 2004 5:50 PM
Subject: [MbrExchange] EnLG 2004nov4 Nuclear Revolution - in the making
Investment Indicators from Peter George
Nuclear Revolution - in the making
Peter George November 4, 2004
"Do not conform any longer to the pattern of this world, But be transformed
by the renewing of your mind." -Romans chapter 12, verse 2
Gold Bugs are used to a world of conspiracy - banks and governments fighting
to deflect the relentless forces of speculators and the market. Despite
feeling at home in such an environment, the writer was surprised at the web
of intrigue and confused emotions battling for supremacy in the field of
nuclear science, some determined to damn its role in the field of energy.
Even today, when the man in the street confronts the concept of 'atomic
power,' he often thinks first of bombs and radiation. He can largely thank
the 'Greens' and their political cousins in the 'Anti-War Brigade' for most
of these distorted perceptions. In a fit of blind zeal the 'Greens' were set
to ditch baby and bath water both. It was not always that way.
By the end of the seventies the nuclear option was gaining ground
everywhere. The US had 100 Nuclear reactors in operation, 20 under
construction and 100 more planned. The world had successfully constructed
over 400 in total: then came 'Three Mile Island" (1979) and Chernobyl
(1986). Most of the US '20' were halted. Those on the drawing board got
cancelled. TMI was an American phenomenon. The world largely ignored it and
waited for Chernobyl. The 'Greens' and their 'fellow-travelers' blew a minor
glitch at TMI out of all proportion. Later, they and others totally
misrepresented the true extent of 'fall-out' from Chernobyl (1986). On the
back of both they sowed a wind of invective against anything nuclear which
succeeded in gutting it as an energy source for the next quarter century.
The process was aided and abetted by a 20-year downtrend in oil and
commodity prices. This helped defer decisions by skewing the economic risk
from nuclear, to less complicated fossil fuels like oil, coal and more
recently, liquid natural gas.
A quarter century later, thanks to the misguided efforts of the 'Greens,'
the world looks set to reap a double whirlwind - a crisis in oil and gas
supplies, coupled with a menace in 'global warming.' The former could see
oil prices spike ten-fold in a decade. The latter could spawn increasingly
nasty side-effects, ranging from 'acid rain' and radically changing weather
patterns, to melting perma-frost and sharply rising sea levels. If at some
point in the future every identifiable 'Green' is punched black and blue by
an angry world, it would be no more than their just deserts. They have been
fighting the wrong war. Well-known 'Green' James Lovelock, of Mother Earth
'Gaia' fame, has repented. We discuss his views below.
Professor John McCarthy, ex-Director of 'Artificial Intelligence Research'
at Stanford, spent much of his life studying the modes of reasoning required
for intelligent behaviour. He summed up political opposition to nuclear as
"The counterculture generation is passing through the peak of its political
powernext generations seem to be more RATIONAL about nuclear energy and many
other issues. Therefore the US is likely to resume building reactors before
being driven to it by other countries getting economic advantages."
When politics and phobias fight markets, markets invariably win. The
two-edged crisis in oil and energy will resolve itself in similar fashion.
The market will determine our choices. First there's not enough
easily-accessible oil and gas. Second, what's left is destroying our planet.
Few will take heed of the damage until dollars and cents combine with the
effects of global warming to give us all a fright.
When the US was confronted in March 2001, with international pressure to
comply with the requirements of the Kyoto Treaty, rolling back consumption
of carbonaceous fuels like oil, coal, and gas, to combat the 'Greenhouse'
effects of global warming, Bush was blunt in his refusal to give a blank
cheque promise of compliance:
"We'll be working with our allies to reduce greenhouse gasses. But I will
not accept a plan that will harm our economy and hurt American workers."
Drawn up in Kyoto, Japan, in 1997, the accord initially called for
industrialized nations to cut greenhouse emissions 8% below 1990 levels, but
gave them 'til 2012 to reach respective targets. To become effective the
agreement required ratification by countries responsible for at least 55% of
carbon emissions in 1990. The US was then producing 36% of the total, but
with only 6% of total population, making it far and away the biggest
polluter. US rejection was a real setback but Bush did not act in isolation.
Two years earlier the Senate had voted unanimously, by 95-0, to reject Kyoto
unless China and other rapidly developing countries were also required to
join. Despite current protestations to the contrary, Senators Kerry and
Kennedy both voted WITH the majority, and AGAINST Kyoto!
Fast forward to 2004 and China has leapt up the rankings to become the
world's second biggest consumer of oil. In the medium term their demand
could double again so, in retrospect, the US was entitled to dig in its
heels until compliance with Kyoto became more widespread.
Today the Bush plan to fight greenhouse gasses calls for investment in
Hydrogen and other alternative sources of energy, together with financial
incentives to encourage their use. But hydrogen is not in itself an 'energy
source.' Furthermore, it can only be produced economically - and in the
spirit of Kyoto - as a by-product of nuclear power. There is no point in
burning oil, coal or gas, to generate hydrogen.
In pursuance of their revised strategy, the US Department of Energy a year
ago commissioned a study by the University of Chicago to investigate the
economic factors affecting the future of nuclear power. That report was only
completed in August 2004. It made ultra low projections about the likely
future course of oil and gas prices, totally ignoring the theory of 'PEAK
OIL' discussed in this report. Conversely, it made quite high estimates for
long term interest rates, and required returns on equity. Both decisions
selectively disadvantaged the capital intensive nature of nuclear reactors.
Despite these distortions, the study fully assured the competitiveness of
The above summary is designed to demonstrate a principle. If market forces
require it, then 'Greens' or 'no Greens,' nuclear will return to fashion.
The appointed time for its restoration is close. We intend to demonstrate
why the case is far more compelling than the tame conclusions of the Chicago
report would indicate. Those who position investments appropriately can make
excellent profits as events unfold, both in the short term and the long,
depending on the sector. As with all markets, they discount the future. For
major new producers of Uranium and certain leading edge technologies in the
field of Reactor Design, the rewards could be exciting. We briefly mention
our top two recommendations below, but they are discussed in greater detail
in the body of the report. In the case of Uranium, the short-term outlook is
very strong. Not only is underlying demand set to ratchet up sharply in the
years ahead, but stockpiles of highly-enriched weapons-grade uranium - and
other non-mined sources - are depleting fast. Simply to close the current
gap, production will need to double in the short term from 85m lbs a year to
170m. If the oil crisis worsens, nuclear will be the main beneficiary. If
'Greenhouse' fears mount, nuclear is the only realistic way out.
Once the world's brightest and best are let off the leash and enticed to
re-enter the world of nuclear research, plants will get simpler, design
margins safer, fuel enrichment cheaper, licensing quicker and construction
In 1979, following the shock of Three Mile Island, uranium prices peaked at
$43 a lb. In the absence of this extraneous event, uranium may well have
continued to rise in step with other commodities, peaking a year later at
$50 a lb. That would have coincided with Brent oil notching its then
all-time high of $40 a barrel, and gold a record of $850 an ounce.
Twenty four years down the track, Brent leads the pack. The price has
surpassed its previous high. At time of writing it had breached the $50
level for the first time ever. Our initial short-term 'point and figure'
target is $54. Nymex 'Light Sweet Crude' is there already. (NYMEX is short
for New York Metal Exchange).
Some commentators predict Brent could reach $60 in 9 months and $80 in 24
months. No doubt there will be the odd gut-wrenching correction on the way -
as we saw in copper recently - but the trend will remain intact.
In response to these multiple pressures, the uranium price will undoubtedly
play catch-up. Within 24 months it could equal and surpass oil. Longer term
both can DOUBLE - $100 a barrel for oil and possibly $125/lb for uranium.
Only then would they be back to where oil was in REAL terms in 1980 and
where uranium might have been were it not for Three Mile Island. The
short-term logic in favour of selecting uranium stocks as top pick in the
energy sector, is therefore overwhelming. The metal starts from a much lower
base than oil - being $20 /lb instead of Brent's $50 a barrel - yet on past
performance the two should at least rank pari passu.
If a cascade of bursting debt bubbles causes the dollar to tank 50% over the
remainder of the decade, nominal dollar values for oil and uranium could
conceivably even RE-DOUBLE. (The 50% figure was a forecast made by The
Economist scarcely a year ago. It is no more than the strict measure
required to restore the US trade deficit back to surplus - currently running
over 5,6% of GDP).
TWO SPECIFIC RECOMMENDATIONS ((( # 2 Is Pebble Bed Reactor))))
Based on the above summary and conclusion, we have two specific investment
recommendations to make. Clearly no action should be taken until you have
passed them across the desk of your personal investment advisor, for a
careful 'yea' or a 'nay.'
1. AFLEASE - Gold and Uranium Producer of Promise
The first is a simple gold/uranium play, but with the emphasis on uranium.
As a South African, the writer spent part of his career in finance as a
stockbroker in Johannesburg, the other as a bond trader in Cape Town. But
his most exciting four year stint took place in between the two moves, from
1983 to 1987, whilst Executive Chairman of junior gold miner Wit Nigel.
Half way through the writer's stormy tenure as Chairman, the company made a
public offer for a minimum 25% stake in a gold-uranium producer called
AFLEASE, then controlled 65% by Anglo's Vaal Reefs gold mine. Today that
company, with a much-expanded capital base, sits on a uranium resource
estimated by Anglo to amount to 330m lbs. That would make it approximately
60% the size of Canadian heavyweight CAMECO. AFLEASE also has two small, but
proven shallow gold reserves - and a potentially much larger gold resource
which has yet to be properly drilled but could ultimately contain in excess
of 10m ounces of gold. A 'reserve' is a deposit which has been properly
established. A resource is far less certain.
In total Aflease controls approximately 60% of South Africa's easily-
available uranium. Grades should initially average close to 1kg a ton (2,2
lbs). A third of projected uranium revenue will come from gold which
co-exists in the same deposit, at an average recovered grade of 1gm/ton.
Much of the resource lies at or close to surface. The other three gold
deposits are quite separate and have nothing to do with the above gold as a
by-product of uranium.
The company recently raised R200m ($33m) via a share swap with Randgold &
Exploration. A portion of the funds will be used to complete a
'pre-feasibility study' of the uranium deposit. It should take 6-9 months
from start to finish. In the late 70's and early 80's the giant Anglo
American Corporation sank 240 boreholes on the uranium prospect. These
ranged from surface down to 2000 meters. To put it bluntly, the deposit has
been drilled as thoroughly as a Swiss 'Emmentaler' cheese.
Seventy of the cores are still available for re-assaying to enable the
information to become SAMREC compliant. In the old days of South African
mining, exploration of the 'Main Gold Reef' - or even the 'Merensky'
Platinum reef - was relatively predictable. Less than a dozen good borehole
results were all one needed to prove up a viable mine because it was simply
an 'extension' of an existing reef. Imagine having 240 drill holes in a
single large deposit! All thanks to Anglo thoroughness.
Subject to the pre-feasibility study producing no unpleasant surprises, the
company will approach one of a handful of potential customers with a view to
establishing an initial mega mine capable of producing up to 6m lbs a year.
2m would come from a 'soft start' short-term opencast proposition, taking a
year or so at most to bring on stream. The mega mine would take four years
to establish and would have a minimum 25-year life.
Most of the initial finance for the above mine would come from the customer.
Mining and treatment costs are expected to average less than $15/lb. If the
uranium price is trading over $30/lb by August next year - currently
$20/lb - we have a very sound proposition on our hands. If the spot price
hits our more realistic target of $45/lb, we have ourselves a veritable
humdinger of a project - despite our long-term bullish projections for the
Rand, currently trading above R6/$.
We enclose a far more detailed analysis in the main body of this report, but
it is only available to SUBSCRIBERS. The Company's CEO is currently on an
overseas 'roadshow,' visiting potential investors in the UK, Switzerland,
Canada, the US, and Japan. Japanese gold group Jipangu already holds 20m
shares and has recently appointed a second director to the Board.
In the long term, should the pre-feasibility pan out as hoped, and should
the market warrant, AFLEASE could one day open THREE mega mines producing a
total of 12m lbs a year. This would place them in the same league as CAMECO
with their current production of 20m. Although AFLEASE has nowhere near the
high grades of CAMECO, it will operate in a far kinder environment. When
account is taken of its by-product revenue from gold, the company will enjoy
surprisingly low costs in relation to it's the price of uranium.
The company has a present issued capital of less than 325million shares. The
ruling price at time of writing was R2,10/share equivalent to US 35cents. We
believe that at around R2,50 ( US 40cents) - it would be possible to pick up
between 20m and 30m shares in sizeable blocks. The total investment would
amount to less than $15m. Should any of our readers be interested, they may
contact us via our web site, www.investmentindicators.com.
On July 27 of this year, we recommended the stock at R1, (US 16 cents) in a
special report entitled: ENERGY UNLIMITED - AFLEASE and URANIUM. It has
since doubled off a low base. We believe that by July of next year, with the
'pre-feasibility' complete and uranium at $30, the shares could be trading
at R7 ($1,16). By the end of next year, 14 months down the line, with spot
uranium probably up at $45/lb and gold at $600 an ounce, these shares could
well be trading between five and six times current levels. That would put
them between R10 and R12/share, equivalent to US $1,80 each.
2. SOUTH AFRICA'S 'REVOLUTIONARY REACTOR'
Investment recommendation number two is even more interesting. The Pebble
Bed Modular Reactor (PBMR) is a South African development based on German
technology established in the 60's, 70's, and 80's, which the Germans dumped
after the traumas of Chernobyl. It promises to revolutionize the nuclear
power industry over the next decade with its inherent safety,
cost-competitive small unit size, and flexible operation. It has perfect
application to commercial-scale production of hydrogen - which Bush is
pushing for - plus desalination for areas short of potable water, and normal
electrical generation in lieu of oil, gas and coal. In terms of cost, ease
of operation and safety, it is 5 years ahead of any other nuclear designs
currently on the drawing boards. It is genuine fourth generation technology
but its biggest selling point is its inherent safety. Those who understand
nuclear plants describe it as follows:
"It is a reactor whose safety is a matter of physics, not operator skill or
The first prototype is due for completion by end 2008. If successful, from
2015 onwards, 35% of all new power plants in the world could be PBMRs - not
nuclear plants, ALL plants.
The South African Government is shortly expected to announce its full
backing for the continuing development of this exciting project. However,
if, after the announcement, a multi-billionaire foreign investor with youth
on his side and a penchant for calculated risk, is prepared to stump up
$1,2billion, he could take a controlling stake in the Pebble Bed project -
on condition he undertakes to keep assembly in South Africa. In 10 years
time he could have an organization valued at many times the size of his
initial investment. South Africa could be generating $25 billion and more a
year, from exports. For the foreign investor, it would be like finding
another NOKIA - 15 years ago, when the company was still in the timber
In a Financial Times article on August 10, 2004 there appeared the following
description of the Pebble Bed:
"Looking further ahead, a US-led consortium of 10 nations is planning fourth
generation reactors that could be deployed after 2015. The six reactor
concepts being studied by the consortium mark a REVOLUTIONARY change. They
would operate at high temperatures (500 - 1,000 degrees centigrade) to
maximize efficiency and minimize the output of radioactive waste. This is
too hot for a pressurized water circuit, so they would use new coolants such
as helium, molten lead or molten salt. Conventional uranium fuel rods would
be replaced with another system such as South Africa's "Pebble Bed"
technology, in which fuel is encapsulated in spheres the size of billiard
If there is anyone out there interested in the amazing potential of this
project, and capable of handling the financial challenge of $1,2billion,
please contact the writer.
N.B. Neither of the above two recommendations has merit unless our primary
analysis of the energy markets is correct. Prospective investors should
carefully assess our detailed reasons for predicting a massive swing back to
nuclear. At this point the reader will only have had sight of our six page
'Summary and Conclusion.'
The full report is over 40 pages long explaining the nuclear and broader
energy markets as well as giving more detailed valuations of Aflease and the
Pebble Bed Reactor. We encourage you to access it at Peter George's website
with a view to becoming a SUBSCRIBER. The address is: