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U.S. Nuclear Renaissance Should Produce Chain Reaction Of Growth

Posted: Feb 23, 2009 11:22 AM by Eugene Bukoveczky

Tickers in this Article: CCJ, USU, RTP, BHP, EXC, NRG

Now that the $787 billion stimulus package has been signed into law, newly appointed Energy Secretary Steven Chu does not want to waste time doling out about $18.5 billion in funds earmarked as loan guarantees to assist in the construction of America's first new nuclear power plants in more than 30 years.

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The loan guarantees will help fund the development of five new reactors, costing an estimated $5 billion to $12 billion each. Presently, the U.S. has more than 100 active reactors producing 20% of the nation's electricity requirement. In addition, the U.S. Nuclear Regulatory Commission expects to receive 34 new applications to build nuclear plants by 2010. After a long hiatus, nuclear power has come back into vogue as a "green" technology, because it produces little or no carbon emissions.

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With a renaissance of nuclear power now in the works, where should investors place their bets in what is shaping up to be a multi-year spending spree?

Uranium Miners Could Soar On Recovery Of Uranium Prices
The increased demand for nuclear fuel is likely to push up the price of uranium and, along with it, the companies involved in mining this key energy commodity. While global mining giants like Rio Tinto (NYSE:RTP) and BHP Billiton (NYSE:BHP) have interests in uranium mines, the best direct investment vehicle is via Canadian pure-play miner Cameco (NYSE:CCJ). Uranium now trades at approximately $47/lb, but traded as low as $7/lb in 2003 before soaring to nearly $140/lb in 2007.

Processors Stand To Enrich Profits
Companies processing uranium into reactor-ready fuel also should benefit from the expected expansion of U.S. nuclear capacity. At present, the only enrichment plant in the U.S. is operated by USEC (NYSE:USU). To meet the expected increase in demand for processed fuel, USEC has filed plans to construct three new processing plants in the U.S., one of which will be operated as a replacement to its aging, high cost existing plant. The new plant will cost about $3.5 billion and is expected to qualify for $2 billion in loan guarantees.

Producers Plan To Power Up Profits
Power producers with existing nuclear facilities also should benefit, as they now are likely to get the green light from government regulators to expand capacity. Once such company, Exelon (NYSE:EXC), is the largest nuclear operator in the U.S. The company recently made news by making an unsolicited bid for another power producer, NRG Energy (NYSE:NRG), which incidentally has filed an application to expand an existing nuclear plant in Texas.

The Bottom Line
Now that the Obama administration is committed to kick-starting America's nuclear resurgence operators, the industry has the potential to realize above-average growth over the next few years. (To learn more about how the government has attempted to stimulate the economy in this time of crisis, be sure to read the Government Response section of our Credit Crisis Tutorial.)

By Eugene Bukoveczky

Eugene Bukoveczky is a freelance writer and investment researcher. He holds a CFA designation and has spent several decades working in the investment business in places like Toronto, New York, London and Dubai. He currently resides in Nova Scotia, where, when not writing, he devotes his time to chopping wood, growing his own vegetables, riding his bike to the store, and thinking about other ways to reduce his carbon footprint.

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