Monday, February 20, 2012

Investors Guru Small Cap Stock Observer

(AMEX/TSX: URZ) Uranerz Energy - First US Nuclear Reactor Approved in 34 Years; These Uranium Companies May Benefit Most

Two New Georgia Nuclear Reactors - First NRC License Approvals Since 1978

Our readers are well aware of the many advantages of nuclear energy versus burning dirty fossil fuels. Those who remain unconvinced sometimes point to the fact that the United States has not approved the building of a new nuclear reactor in over three decades, since a year before the Three Mile Island accident in 1978. However this anti-nuclear argument just became null and void as of Thursday, February 9, 2012, as the U.S. Nuclear Regulatory Commission has just approved the building of two new nuclear reactors in Georgia.

A consortium of utilities led by Atlanta based (NYSE: SO) Southern Company successfully completed a seven-year approval process, and can now start building two new reactors at the Vogtle nuclear power plant complex in Georgia, where two existing reactors already operate. The first new reactor should come online in 2016 and the second in 2017. At an expected cost of US$14 Billion, the new reactors will provide 2,200 megawatts that can power an additional million homes.

For more, see the company's full news release, "Southern Company subsidiary receives historic license approval for new Vogtle units, full construction set to begin".

In some of our past articles about the nuclear industry, I have mentioned various stats that have focused on the industry's forward growth prospects in China, India and other emerging economies. The World Nuclear Association shows there are currently 61 reactors under construction, 160 on order or planned, and 335 proposed worldwide. However we should not forget that the U.S. currently still accounts for nearly a quarter of the world's nuclear reactors. Nuclear energy provides about 20% of the United States' electricity from 104 operating reactors, out of a total of 434 reactors now operating worldwide.

Those who cite accidents at Fukushima, Chernobyl and Three Mile Island, as reasons to avoid using nuclear power should also remember that reactors have been dependably supplying electricity to the U.S. power grid since the 1950's. In fact two-thirds of the world's population today live in countries using nuclear power and more than 15 countries get over a quarter of their electrical needs from nuclear.

Then there's France, which gets around 80% of its electricity needs from nuclear reactors, and is the world's largest net exporter of electricity. Contrast this with Italy that has almost the same population but has no nuclear reactors, and is the world's largest importer of electricity. Facts like this are starting to sink in, as even some past anti-nuclear politicians are now getting behind nuclear power development as a way of staying true to their stated goals of energy independence.

The growth prospects of the nuclear power industry are not just about China, it is a worldwide story. For sure some areas of the world are growing faster, and China is a key player, but every country will need more energy over time. All of the following countries produce a greater part of their electricity from nuclear power than the United States: France, The Czech Republic, Finland, Slovakia, Spain, The Republic of Korea, Hungary, Sweden, Belgium and the Ukraine. Germany, Japan and Switzerland have been reviewing their nuclear policies since Fukushima, and may or may not still be included on this list.

We need to cure our addiction to fossil fuels and better emphasize nuclear's many advantages. So, are the two new nuclear plant approvals in Georgia just one-offs, or is this another sign of good times to come for the nuclear industry, and for the companies exploring, developing and producing uranium?

From a February 9, 2012 MSN article: US licenses first nuclear reactors since 1978. ... The Obama administration has stated its support for nuclear power and the industry believes a "nuclear renaissance" is in the making. "This is a historic day," Nuclear Energy Institute President Marvin Fertel said in a statement. "Today's licensing action sounds a clarion call to the world that the United States recognizes the importance of expanding nuclear energy as a key component of a low-carbon energy future that is central to job creation, diversity of electricity supply and energy security."

Why is uranium such a strategic metal for the United States?

Isn't there a hundred year supply of coal? What about all the natural gas and shale oil that might be available?

I don't think we need to go into all the environmental issues again with burning dirty fossil fuels versus using much cleaner nuclear energy. Same for the fact that fossil fuels are highly inefficient, requiring huge reserves, and that these resources deplete quickly and forever. On the other hand, nuclear reactors produce electricity from U3O8 uranium, which is an extremely efficient fuel. The main point is that huge volumes of coal, oil or natural gas are needed daily to fuel each power plant, while only a tiny quantity of uranium can produce the same power.

It's amazing how just a few pounds of uranium can produce the same electrical power output as thousands of tons of coal, or tens of thousands of barrels of oil. Typical U.S. power plants support a city of one million people, and to operate a plant of that size here's how much fuel is needed daily:
  • 9,000 Tons of Coal; or
  • 40,000 Barrels of Oil; or
  • Less than 7 Pounds of Uranium (Nuclear Power)

Put another way, the average U.S. residential use of electricity for an entire year is equivalent to consuming: 5.5 tons of coal, 800 gallons of oil, 110,000 cubic feet of natural gas, or less than one ounce of uranium!

Nuclear energy leaves virtually no carbon footprint and most nuclear by-products can be reused for energy. Instead of flame flares or stacks of smoke, you just see steam coming from a nuclear power plant. With all of these advantages, and with a quarter of the world's nuclear reactors located in the U.S., plus having the world's largest military nuclear needs, you can see why uranium is such a strategic metal.

The U.S. produces only 3% of the world's uranium supply. Domestic sources are likely to become increasingly important.

One small-cap uranium company that may especially benefit as the U.S. develops and updates its fleet of nuclear reactors is (AMEX/TSX: URZ) Uranerz Energy - US$2.71, Market Cap. US$209M, +48.90% YTD (January 1 to February 19, 2012). Uranerz is closest to putting the next U.S. uranium mine into production.

Large-cap uranium producers like (TSX: CCO)(NYSE: CCJ) Cameco Corp. US$24.00, Market Cap. US$9.5B, +32.96% YTD, (TSX: UUU) Uranium One C$2.96, Market Cap. C$2.8B, +37.04% YTD, and (TSX: PDN) Paladin C$1.87, Market Cap. C$1.6B, +31.69% YTD, should also benefit from increased U.S. nuclear energy development.

Not surprisingly, Uranerz Energy is again a top performer in the uranium sector

Our focus in the uranium space continues to be our Featured Stock (AMEX/TSX: URZ) Uranerz Energy. The company's first ISR mine, called the Nichols Ranch project, is located in the prolific (PRB) Powder River Basin and is anticipated to start producing uranium in the second half of this year.

Wyoming and the PRB have produced more uranium than anywhere else in the United States for decades. Several of our past articles have detailed Uranerz Energy's experienced management, the efficiencies of the In-Situ Recovery mining process they are using, the company's substantial U3O8 resources found to date, and the huge prospective property holdings they plan to explore and develop into additional nearby feedstock for the Nichols Ranch mine.

Uranerz is over six months into constructing its first mine, expected to cost US$35 million, and the company still has over US$30 million in its treasury with no debt. We look forward to providing more mine construction and other company updates, including the status of their disposal well permit, towards the commissioning of the company's first mine later this year.

See Uranerz' photo gallery by clicking on this January 2012 aerial view mine construction picture.

Uranerz has both the excitement potential of a grassroots exploration play, with also the fundamentals of potential future cash flows from anticipated production. The company has established sales agreements with major utilities like Excelon, and has a processing agreement in place with the world's largest uranium producer, for final processing at Cameco's nearby Smith Ranch Highland mine. Stay tuned!

Sign-up at (or for our Small Cap Stock Observer newsletter, and to set-up your own My Portfolio, My Watchlist & Alerts and News by Email preferences, or to post at our URZ Bulletin Board. Free!

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from is subject to the terms of our Privacy Policy and Disclaimer.