The world is moving toward a clean energy future, without a doubt.
What's unsure, however, is where our energy will come from when we’re no longer relying on coal and natural gas.
The first answer many jump to is the most obvious: renewables like wind and solar! Occasionally, they’ll even cite the already popular, albeit rarely discussed, hydropower.
Not nearly enough people acknowledge the elephant in the room... that is, that one of the most stigmatized energy sources in the world will almost assuredly be the biggest help in moving from being powered by fossil fuels to running clean.
It’s time to face facts: we’re going to need nuclear.
And more than nuclear power itself, the commodity that makes it all possible is going to soar in value and make investors a mint on the way.
Uranium is the commodity of the future.
Necessity of Nuclear
The world is going to need nuclear power as it transitions away from fossil fuels — that much we know. One of the biggest drags on this development is the strong stigma against nuclear energy. Simply put, people worry about explosions.
You can't blame them too much, especially considering the technology's history. Take Pennsylvania's Three Mile Island for example.
In 1979, the plant had a partial meltdown, due as much to human error as to problems with the technology. The public panicked, and with good reason. A full meltdown would have been catastrophically deadly.
But did this, the worst nuclear incident in the country, stop all nuclear development for good?
Nor did the much bigger Chernobyl disaster a few years later.
Even the more recent 2011 Fukushima disaster in Japan didn't stop the installation of more nuclear plants — it just delayed them.
So what's keeping people interested despite the danger?
To keep it short, there are two main factors that should end any bias against nuclear power:
Nuclear energy is the only emissions-free production method that can hold as high a capacity as 99%, meaning it's producing at almost full capacity 24/7.
No matter how efficient the technology has become, solar and wind will never be able to achieve that simply because they're dependent on two things that don't run 24/7: sunlight and wind.
Until the technology catches up, nuclear is covering the difference.
New plants are being planned and brought online in the U.S., India, the UK, Russia, and even Saudi Arabia, which is working to reduce its dependency on oil. But the country with the biggest growth potential for nuclear power, by a landslide, is China.
In the next few years, China is expected to more than double its nuclear capacity to 58 GW by 2021. The country will have 150 GW of nuclear installed by 2030, with more to come after that. The country is also supporting Britain's Hinkley Point C project in southwest England and will have the majority share of another planned reactor project north of London.
As of July 2017, there were more than 60 plants being constructed worldwide. Right in line with the EIA's predictions, 20 of these are being built in China. Russia has a handful under construction and another 25 being planned. Japan currently has only five of a possible 42 reactors up and running again, but several have applied for restart, and two more are under construction.
To make sure everything goes smoothly, new safety precautions are being implemented all the time. In 2015, the International Atomic Energy Agency (IAEA) reported 2,118 in-field inspections on nuclear plants, 1,416 security cameras installed, and nearly 1,000 separate samples collected for analysis of nuclear content.
Those nuclear accidents weren't for nothing. Nuclear power regulations have become a lot more stringent, making new and added capacity that much safer. And that means it's time for nuclear's stellar progress to resume.
Of course, there's more than operational safety to consider...
Larger Than Lithium
Much like you shouldn't invest in Tesla to get in on the lithium boom, nuclear power companies are not the best way to take advantage of the industry's growth.
The biggest chance for profits isn't in the electricity... it's in the commodity that makes that electricity possible: uranium.
Of course, there are other uses for uranium besides in nuclear reactors. Depleted uranium can be used in armor and ammunition, gamma radiation shielding, and even as a coloring in ceramics.
But by far, the biggest use for this commodity is in the nuclear space.
When considering an investment, it's important to note that uranium doesn't trade on the open market like oil does. You don't invest directly in the commodity, but rather in the companies that work with it.
That said, uranium does cater to the whims of supply and demand.
And if you’ve been on the fence regarding the true value of uranium, take note.
We'll start with a little history lesson...
Anyone who has a dime invested in uranium has come across Canadian Cameco at one point or another.
The company accounted for about 17% of the world's uranium in 2016, with mines in Canada, the U.S., Kazakhstan, and Australia. Today, its highest producing mine is the McArthur River, yet its biggest reserves — the largest undeveloped reserves in the world, in fact — are under the Cigar Lake mine.
In 2006, a catastrophic flood occurred at Cigar Lake. As you can see below, it sparked an unprecedented surge in uranium prices:
Prices peaked around $137/lb. within a year of the flood, then fell sharply in mid-2007.
It wasn't until 2010, after much pumping and yet another influx of water, that Cameco declared the mine clear and ready to resume work.
But by then, the damage had been done...
Compare this to today:
The world has plenty of uranium to cover demand since that demand has been unwaveringly low. This has brought prices way down and stagnated investment into new mining infrastructure.
Uranium production has only been inching upwards incrementally since 2007. According to the World Nuclear Association (WNA), uranium production has increased by about 50% since 2007, and in 2016, it managed to cover 90% of world demand.
More than two-thirds of the world's supply comes from just 15 mines — four of which are majority owned by Cameco.
So instead of another threat to supply, today we’re looking at the other side of the equation: demand.
Currently, there are 444 nuclear reactors operating worldwide. Another 63 are being built, and even more decommissioned plants are expected to come back online, albeit with a few safety alterations.
As it stands, we'll be looking at a supply shortage within the next few years thanks to this jump in demand rather than a bust in production.
Before 2007, investment into energy technologies, nuclear included, was rising steadily. But after the dual pain of the 2008 financial crisis and the Fukushima disaster, the world's nuclear capacity has been mostly flat. Demand for uranium has plateaued, and the price has continued to slip into a recent 11-year low.
The problem is that the uranium market looks similar to the oil market right now: flat demand and more supply than strictly needed.
But that won't be the case for long...
You see, most companies can break even on long-term contracts worth $50 per pound of uranium. Unfortunately, prices have fallen to less than half that, which is putting higher-cost producers at risk.
Of course, that still leaves a major up-side for investors who are paying attention.
Once businesses begin shutting down, only the best will continue to produce. And those will be the companies to watch, as they'll have access to the world's cleanest energy fuel as the demand continues to grow and prices skyrocket.
Khazistan, the highest-producing country in the world, has also decided to cut its uranium output, futher boosting uranium's outlook.
The coming increase in nuclear capacity worldwide is going to boost demand within the next two years.
By 2020, the WNA expects that additional mining operations will be absolutely necessary.
All the pieces are in place to make uranium a win: flat demand over the past few years has prompted lower prices, producers have cut output accordingly, and now demand is about to make a serious jump.
Forget waiting for oil to recover, or even for a good deal on gold. This is the real market recovery to watch out for.
Making a Mint
In looking for potentially portfolio-busting uranium investments, it's impossible not to come back to Cameco (NYSE: CCJ). This company is best outfitted to benefit from uranium's comeback, and it's currently a steal.
Cameco's stock took a free-fall both because of commodity prices and an early 2016 earnings loss. Much like struggling oil miners, these commodity producers need higher prices to get even the best companies back on track.
But as you can see, it's already on its way back up. Part of this reversal is due to Cameco's annoucement that it would be temporarily shutting down operations at its Rabbit Lake mine, yet another push in the right direction for uranium's price.
Cameco has managed to stay at the top of its market thus far, and already has the infrastructure and business know-how to step back up when the time is right.
Even with the Rabbit Lake mine shuttered, Cameco still accounts for a large portion of the world's uranium supply with its other two major mines: McArthur River and Cigar Lake. No other single company holds that much sway on the market.
Analysts covering this stock consider its current price to be just the start of a recovery. Once nuclear capacities start rising en masse, this company will see its profits come rolling back in.