By Stockpickr Staff
Posted on April 23, 2009

According to the World Nuclear Association, there are currently 439 active nuclear power plants throughout the world. Moreover, industry trade data shows that 36 new reactors are currently under construction, 99 new reactors have either been planned or approved by their local governments/countries, and an additional 232 new reactors have been proposed as of October 2008.

The The International Atomic Energy Agency projects at least a 27% increase in nuclear capacity by 2030. In 2007, 14% of the world's electricity came from nuclear power.

Data from the World Nuclear Association has shown that during the 1980s, one new nuclear reactor started up every 17 days on average, with estimates hinting that by the year 2014, this rate could increase to one every five days.

The uranium market is relatively inelastic, with atomic reactors currently consuming about 165 million points of uranium worldwide annually. Interestingly enough, the world is only able to produce 110 million pounds of uranium according to the World Nuclear Association. The remaining 55 million pounds come from gradually declining sources, including former weapons material; by 2013, this is forecasted to run out.

If the number of reactors reaches 740 by 2030, the price of uranium is going to move substantially higher.

According to data produced by USEC, the following countries and regions are working on reactors: China, on 33 reactors; Russia, on 19; India, on 16; Japan, on 13; the U.S., on 12; Eastern Europe, on 9; South Korea, on 8; Canada, on 5; Pakistan, on 3; Iran, on 3; Brazil, on 1; Argentina, on 1; South Africa, on 1; France, on 1; and Taiwan, on 2.

Given the fundamental backdrop, uranium suppliers such as Cameco (CCJ) and USEC (USU) are cheap and poised to move higher. About 445 million pounds of new uranium production is required to meet demand over the next 10 years. Given that it takes about 10 to 15 years to permit and construct new minds, the industry will be challenged to meet demand, prices will shoot higher, and these companies will coin money.

USEC (USU): USEC is a leading supplier of enriched uranium fuel for commercial uranium fuel for nuclear power plants worldwide. USEC operates the only uranium enrichment facility in the U.S. and supplies more than half of the U.S. market and about 30% of the world market. USEC also serves as an executive agent for the Megatons to Megawatts program, a nonproliferation agreement with Russia to convert nuclear weapons material into low enriched uranium. As of Dec. 31, 2008, USEC has an estimated sales backlog of $6.9 billion. Over the past two years, USEC supplied 28% of the world’s enriched uranium needs, fueling more than 150 reactors on three continents. In the U.S., USEC had more than 50% of the market share.

Cameco (CCJ): Unlike USEC, which is more subject to the spot price of uranium, Cameco generally targets a 60/40 or 65/35 mix of spot prices with longer-term contracts. Cameco represents about 19% of the worlds mine production, and the company has 500 million pounds of proven and probable uranium reserves. Cameco generated $1.9 billion in cash flow over the past five years while remaining well below the firm’s net debt-to capitalization target ratio of 25%. Cameco also owns 53% of Centerra Gold .

Shaw Group (SGR): Shaw Group has a $2.37 billion dollar market cap, with a stated backlog of about $16.5 billion. Shaw Group's backlog is broken down into five main business segments, and its fossil and nuclear division backlog alone is worth about $6.7 billion, with about $1 billion in new orders coming in fourth-quarter 2008. This part of Shaw's business is an industry leader in the gas-, coal- and nuclear-powered facilities space, recently executing six new coal-fired projects in England.


The purest play on spot uranium is USEC, which operates based fully on the spot price of uranium. This name offers both the most up and downside. Cameco operates a little less than half of its business on longer-term forward contracts, which has severed a bit as a hedge from the short-term decline in spot uranium prices. You also get some gold exposure with Cameco. Shaw Group and General Electric (GE) actually make the nuclear reactors; Shaw Group is the most leveraged, while General Electric has a wide portfolio of assets.