Making Money on the Global Warming Crisis

Bad weather may be heading our way. Many very smart voices have raised their volume over the number of alarming red flags pointing to a worldwide environmental catastrophe coming in a few years or decades hence. One voice, coming from the sharp mind of James Lovelock is resounding across the world’s media nearly every day. His solution: get more nuclear reactors online and sequester the carbon dioxide emissions as fast as possible. What’s the alternative? Move to the Arctic Circle, where you may someday bask year around with temperatures pleasantly at 74 degrees Fahrenheit. According to findings recently published in the journal Nature. About 55 million years ago, there was something called the Paleocene Eocene Thermal Maximum (PETM). In this PETM phenomenon, the entire Earth was heated up by a gigantic release of greenhouse gases, like carbon dioxide. Lovelock has insisted we may see that kind of hot later this century. Now, another brainy man, with whom we have many chats this year, has issued a special 56-page report, entitled “Investment Implications of an Abrupt Climate Change.” Co-authored by Market Strategist Kevin Bambrough and Eric Sprott, Chief Executive and Portfolio Manager of the world-famous money management firm which bears his name, they present a compelling argument as to why and how global warming and climate change is going to dramatically impact our financial world. You are well advised to read it. Take Your Pick: Nuclear Energy or Cheap Arctic Land Aside from optioning to buy vast tracts of land near the Arctic Circle, as Dr. Lovelock’s conclusions force us to briefly consider, what can we do to protect our finances? Global warming, climate change and an apocalypse soon to dawn on the horizon are probably too much reality for the here and now. But, what will you do ten to thirty years from now? This past week, we interviewed Julian Steyn, author of A Brighter Tomorrow, which he co-wrote with U.S. Senator Pete Domenici. A conservative and rational man, even he admitted in an email, “I am afraid I do agree with his (Lovelock’s) concerns.” If one finds logic within the statistical analysis presented by the United Nations Intergovernmental Panel on Climate Change (IPCC), a rational mind would want to start protecting his finances today in order to ensure future survival for his family and lineage. Esteemed scientists have picked their way through mountains of statistics, charts and projections about what is happening with melting glaciers, rising temperatures, higher sea levels and so forth. They do not like what they see, they are not alone, and the better minds are not endorsing wind farms or solar panels as “the solution.” They see nuclear fission reactors as mandatory, and the faster these go online, the less we will later have to sweat (literally). Eric Sprott and Kevin Bambrough have laid out a possible solution, a cogent thesis as to why we must stop fooling around now. They didn’t write the report to alarm and cajole you to lynch the next environmentalist or anti-nuke whom you come across. Messrs. Sprott and Bambrough provided a blueprint of what must be done by governments and decision-makers. More importantly, they have given us extremely provocative advice on HOW to protect our finances during the brewing crisis. Remember, it won’t just be some meteor hitting the earth (although that might happen, too). Global warming is tantamount to boiling water on your stove. First, it gets warm, then warmer and warmer. Eventually, it gets hot. Then, the water boils. In other words, the catastrophe will brew for a while, causing political and economic instability, and a host of other ills, probably better described in biblical terms. Most of us, unfortunately, will wait until the next Hurricane Katrina is a few miles down the road before waking up. Through the first half of the report, the authors cover global warming and climate change, in just about every way imaginable. Messrs. Sprott and Bambrough found nooks and crannies which may alarm you. Did you know the world’s largest aquifer, the Ogallala aquifer in the United States, is drying up because the glaciers, which created this aquifer, are receding? Fresh water is already in short supply for one-third of the world’s population. We may be surrounded by water, but could lack a glass of fresh water to drink. Ask the Saudis why they are building desalination plants as fast they can. Imagine if those arid conditions prevailed across more than 90 percent of the landmass of earth. What happens as the earth’s temperature goes up? Increased urbanization, growing GDPs and demand for all the niceties that come with “civilization” have a price: more CO2 emissions. Deadly CO2 emissions, which raise the earth’s temperature, poison our air and kill our plants (and us), are very likely going to turn this earth into a potboiler before the century ends. Nuclear Expansion Needs More Uranium “This IS the perfect storm,” Kevin Bambrough warned, not as the abused cliché the term has become, but as an angry voice demanding decision-makers take to heart the gravity of CO2 emissions. “We need more nuclear reactors now,” he told us. He directed us to environmentalist Patrick Moore’s contention that the U.S. should reverse its energy source mix from an 80-percent dependence upon fossil fuels, relying instead upon nuclear energy for 60-percent of our electrical power supply. Under the former Greenpeace co-founder’s scenario, Bambrough extrapolated the World Nuclear Association (WNA) projections for 2030. Nuclear power demand is then expected to soar from the current 368 Gw, produced by the world’s 441 nuclear reactors. He computed, using Moore’s premise of a 60-percent nuclear-reliance, that nuclear reactors would produce 18,900 Twh of the total power demand in 2030, which the WNA estimates might reach 31,500 Twh. To produce that much electricity, Bambrough calculated that by 2030, nearly 2700 nuclear reactors will be required across the planet. Envisioning the “potential” of a 600-percent increase in nuclear reactors online, about 25 years from now, Bambrough also calculated how much uranium would be required to fuel those reactors. According to Bambrough, current global uranium mining production rests at about the 100 million-pound level. By 2030, if nuclear energy expands as Moore insists it should, then the world’s utilities will require on the order of about 1.3 billion pounds every year. With regards to a planetary build-up of nuclear energy, Bambrough wrote, “The supply of uranium may well be the most limiting factor.” This may become the new case for a sustained rally in the spot uranium price. Bambrough wrote, “Much higher uranium prices will be required to attract enough investment capital to meet the growth in demand.” This has already begun, as uranium prices have skyrocketed for the past six years. Long-term uranium recently traded as high as $46/pound, exponentially higher than the spot price of $6.40/pound in late 2000. Bambrough is correct in his conclusion. Building an underground uranium mine costs far more than it did in the glory days of uranium in the 1950s. Environmental regulations force miners to spend more and take longer in constructing any uranium-producing facility, including an ISL operation. “Marginal mines will become price setters,” wrote Bambrough. This helps explain why the Sprott Asset Management funds have invested heavily in companies such as Strathmore Minerals (TSX: STM; Other OTC: STHJF), Energy Metals (TSX: EMC) and others. When we first interviewed Strathmore Minerals Chief Executive, Dev Randhawa, in June 2004, he told us his strategy was to capitalize upon a sustained rally in the uranium price by acquiring properties which were uneconomic at the sub-$20/level. His strategy has rewarded shareholders and continued to do so with each uptick in the spot uranium price. If Bambrough’s conclusion is accurate, the junior uranium developers could very well become the Internet high-fliers. That conclusion was reached by newsletter writer James Dines, this past November, and repeated numerous times in multiple reports by others. “Large low-cost producers may be able to reap Middle East-like oil profits for decades,” wrote Bambrough. If the spread between production costs and spot uranium keeps widening, the smaller uranium companies are going to hit it big. Those companies, which postponed uranium mining, will be selling their uranium production at the kind of profits-to-production spread ExxonMobil or ChevronTexaco now enjoy. Rising uranium prices are probably more of an irritation for fuel traders than the utilities, who worry about construction costs. The actual fuel cost to operate a nuclear power plant borders on the absurd. Bambrough wrote in his report, “Fuel costs (for nuclear) are merely 4.5 percent of total costs, even with uranium at $40 per lb. If uranium rises to $100 per lb (a further 150 percent increase), the cost of nuclear power would only rise by approximately 6.75 percent.” Fuel costs for coal and gas are 35 and 73 percent, respectively. And they release massive doses of CO2 into the air. What else can be done aside from a worldwide, unanimous endorsement of nuclear energy? There may still be difficulties ahead. Lovelock told us the CO2 emissions problem should have been addressed 50 years ago. It takes between 50 and 100 years for the atmosphere to cycle through those emissions. The Sprott report co-authors concluded there will be supply problems for food, water and energy. They envision problems with national security, soaring grain prices, and greater investments needed to provide water and energy to those who aren’t buried ten feet deep in their indebtedness. They foresee a currency collapse as central banks flood the money system to provide liquidity. And, of course, gold will resume the role it has always held during times of overpowering economic calamity. Is this too much reality for you? Should we just wait a while and see what transpires? We might not be so lucky. Some experts, such as the Chief Claims Strategist for Swiss Re, wrote in a March 2006 CERES report, “Global warming has accelerated from a problem that might affect our grandchildren, to one that could significantly disturb the social and economic conditions of our lifetime.” In other words, Messrs. Sprott and Bambrough are correct in their assumptions and conclusions. The time to get moving is today, not thirty years from now. For a second opinion, before completing this column, we forwarded the Sprott report to David Miller. He wears many hats, including a consultancy to the International Atomic Energy Agency, third-term Wyoming legislator, president of Strathmore Minerals (TSX: STM) and a walking encyclopedia on uranium, geology, nuclear power and politics. He responded quite bluntly, “The fuel of the 19th century was coal. The fuel of the 20th century was oil. Both have run their economic course. Uranium is on its way to becoming the energy fuel of the 21st century. The crescendo of countries clamoring for nuclear energy has been growing louder in each year of this new millennium.” Perhaps, we may yet see Moore’s energy mix come to pass, or at least dramatic growth in the nuclear sector to more closely approach his targeted percentage level. One key question remains unanswered, during our two-year investigation into uranium and nuclear energy. Sure, we’ve gotten a lot of answers, but we remain unconvinced. No one has satisfactorily answered this question: “Will there be sufficient supplies of ‘already mined uranium’ and current mining production available to the world’s nuclear reactors to meet the anticipated global demand for electricity?” The make-break word in the above question is “available.” Uranium is nearly everywhere. There are about 1.7 billion pounds of ‘already mined uranium’ in the world’s inventories. But will there be enough uranium made available to the utilities when the time comes? If there is not, today’s spot uranium price could look comparable to gasoline prices, circa 1965, at some future point.

Earth’s Population to Drop by 80 Percent, Says Top U.K. Scientist

Some like it hot. According to environmentalist James Lovelock, we’ll get plenty of hot between now and the end of the century. “We are so far down the path toward the hottest we have been, since we were 55 million years ago,” Dr. Lovelock, who is also a leading atmospheric scientist, told StockInterview in a tape-recorded interview last week, “that as many of us look at it, it’s not going to make very much difference what anybody does.” In stronger commentary, which he wrote for England’s Independent newspaper, this past January, Lovelock warned, “The Earth is about to catch a morbid fever that may last as long as 100,000 years.” And we were worrying about another Ice Age? Skeptics might wonder if his 1200-word essay was just book publicity hype. Lovelock’s scathing our-world-is-doomed article was published about two weeks before Penguin Books (UK) began selling his latest work, The Revenge of Gaia, in bookstores across the British Isles. He did admit within his newspaper commentary, “This article is the most difficult I have written.” While interviewing Dr. Lovelock, during our transatlantic phone conversation, the octogenarian sounded sad with his prediction, but still optimistic, despite his ruthless appraisal of what may lay ahead for the rest of this century. “I see the crunch coming as an opportunity to improve ourselves in a way. Who knows? Man may have a better chance when he starts again.” ONLY ABOUT ONE BILLION HUMANS WILL SURVIVE What does he mean by starting again? “By the end of this century, there is a high probability that the bulk of our species on the planet will be eliminated,” the soft-spoken Lovelock gravely remarked. “There may be something, plus or minus, on the order of a billion left.” Is there much hope, we asked. “I don’t see our current civilization hacking it,” he lamented in his response. But, but, what if? “Enormous changes must be made,” he stressed. “Society is much too slow in cutting back.” He insisted these changes should have started at least 50 years ago. Later he added, as an afterthought, “If Europe and USA were trying to be good and cut back by 30 percent, it’s really not going to help much. I don’t think the public wants to do it.” In Lovelock’s forecast, he envisions, at the end of this century, the last few humans would be forced to rebuild the remnants of our civilization in the Arctic. It won’t be as cold up there by then, as you might think. He told us, “Within 25 years, most of the global ice in the Arctic will be gone. You will be able to take a sailboat to the North Pole.” How long before we begin to feel these changes? “In my own modeling, I rather think it is an unknown number of years,” Lovelock explained. “It may be five years or it may be 30 years.” He offered a visual, “Think of it as a rope or a string. Global warming may run up in a straight line or a curve lying a bit loose as the IPCC seems to project.” Lovelock summarized why his forecast is dire and probably irreversible, “Everybody forgets the greatest damage we’ve done to the earth is not so much the emissions from greenhouse gases, but taking away the natural resistance from the farmland ecosystem. By doing that, we have disabled the planet’s ability to regulate itself.” Lovelock does not enjoy painting a picture of what earth might look like several decades from now. He wrote in the Independent, in January, “Much of the tropical land mass will become scrub and desert, and will no longer serve for regulation; this adds to the 40 per cent of the Earth's surface we have depleted to feed ourselves.” Through his book and in various articles, Lovelock has repeatedly blasted environmentalists who gamble away earth’s future by campaigning for renewable energy sources. That’s when we began talking about environmentalists, especially the idealists who claim to be helping preserve the earth. So, we asked this leading environmental scientist what was really wrong with today’s environmental movement. Bitterness entered his voice when Lovelock answered, “It’s mostly made up of urban people, who know almost nothing about the countryside and still less about the ecosystem.” He scoffed, “Their solutions are basically urban-political solutions. They continue to insist on wanting to run their cars on bio fuels. This is one of the maddest ideas of the lot.” Lovelock cuts no slack for those championing the cause of bio fuels. He writes in The Revenge of Gaia, “It would require us to burn every year about two to three gigatons of carbon as bio fuel (a gigatons is one thousand million tons). Compare this quantity with our yearly food consumption of half a gigaton tons… We would need the land area of several Earths just to grow fuel.” Does he believe environmentalists are wrecking the environment? “I’m afraid I do,” he glumly responded. Because we know there remain several environmental groups who refuse to embrace nuclear energy as a much-needed solution to the planet’s energy mix, we asked what he would like to say about them. “They are being very foolish,” he quickly shot back. After a pause, he added, “They are living in a dream world.” Like the father figure he is, Lovelock is disappointed but tries to remain buoyant. He wrote in his recent book, “My feelings about modern environmentalism are more parallel with those that might pass through the mind of a head-mistress of an inner-city school or the colonel of a newly formed regiment of licentious, and naturally disobedient young men: how the hell can these unruly charges be disciplined and made effective?” LOVELOCK WANTS THE WORLD TO GO NUCLEAR NOW The headline of a recent editorial in a Boston newspaper asked, “Are Pro Nuclear People the New Greens?” We discussed that. “It’s a bit of an old term, really,” he grinned. “Nuclear has been around for more than 40 years at least. I suppose in some countries, like the United Kingdom, you will find some groups are looking more toward nuclear.” Make no mistake in thinking James Lovelock is anything but Pro Nuclear. His quote adorns the top of the front page of the World Nuclear Association’s website, “There is no sensible alternative to nuclear power if we are to sustain civilization.” Rightly so, the trade association refers to their proponent as the “preeminent world leader in the development of environmental consciousness.” In his book, Lovelock writes, “There is no alternative but nuclear fission until fusion energy and sensible forms of renewable energy arrive as a truly long-term provider. Nuclear energy is free of emissions and independent of imports from what will be a disturbed world.” Lovelock briefly analyzes the value and harm of each energy source in The Revenge of Gaia. He has a burning disgust for coal mining, and finds carbon-based fuels inefficient and dangerous, not only to humans but also to earth as a self-regulating system. He has frequently warned that renewables are insufficient to meet our planetary energy needs. In contrast to renewable advocates Amory Lovins or Senator Hillary Clinton, Lovelock sees little value in the immediate future for either solar or wind energy programs, and has harsh words for them, writing, “It will fail and bring discredit both to the greens and to the politicians foolish enough to adopt renewables as a major source of energy before they have been properly developed.” He believes their renewable energy solutions might only hasten our civilization’s demise. Because Lovelock strongly opposes widespread mining, and because nuclear power depends upon the mining of uranium, how does he feel about uranium mining? “I don’t think it matters because it will never be a very big operation,” he replied. “When you consider the ratio of the energy produced from uranium compared to coal, on a ratio of millions to one, the quantity of uranium being mined is trivial compared to coal mining.” We explained to Dr. Lovelock how U.S. uranium companies replaced conventional mining with In Situ uranium recovery. Lovelock thought the In Situ is “a good idea because it mobilizes the uranium with the oxygen in the water and doesn’t make a god-awful mess of the environment.” CALLS NAVAJO NATION URANIUM BAN ABSURD Because of our coverage regarding environmental developments in New Mexico for companies such as Uranium Resources (OTC BB: URRE) and Strathmore Minerals (TSX: STM; Other OTC: STHJF), we talked about uranium mining in that state. Given that it was such an odd event, we discussed the Navajo Nation ban on uranium mining in the four-state tribal reservation area, called ‘Four Corners.’ Puzzled ourselves by this, based upon the latest scientific developments of the in situ uranium recovery method, we discussed an earlier conversation we had with Dr. Fred Begay. This past November, while visiting Los Alamos National Laboratories (LANL), we had asked Dr. Fred Begay about the new face of uranium mining. Dr. Begay, who is both a nuclear physicist and a Navajo, was continuing his affiliation with LANL by conducting community out-reach programs on the Navajo reservation. He told StockInterview, “The Navajo don’t get it. They have illiteracy on mining and uranium.” We asked James Lovelock what he thought of the Navajo uranium ban in the context that the tribe also receives about $100 million annually from coal mining royalties. “Had there been no mining at all in the Navajo Nation, and they wanted to keep the deposits pristine as part of a natural ecosystem, I could understand their rejection to any mining,” he explained. “But if they allow coal mining, then it’s absurd to reject uranium mining.” What would James Lovelock say to Navajo Nation president Joe Shirley, Jr. or to any of the aborigine tribes in Australia and elsewhere, which dislike uranium mining? “Very little,” he abruptly replied. Then, he clarified his response. “It’s almost like trying to persuade any religious person that their belief is unfounded. I wouldn’t dream to explain to a devout Catholic that I’m doubtful about the virginity of the Virgin Mary.” He compared it to an article of faith, adding, “They don’t think about it. They don’t know that it is wrong. It is very difficult to deal with people like that.” Does that apply to the average anti-nuclear environmentalist? He explained how he does deal with the uninformed, “The only thing I found effective in this country, the United Kingdom, is to say, ‘Yes, it may be slightly dangerous, but nothing quite so dangerous as global warming. So, we may have to use it to overcome this.’” CHINA AND FINAL WORDS One can not talk about 21st century nuclear energy without bringing up China’s dilemma. The world’s largest coal miner and one of the worst air polluters, China is planning the most aggressive nuclear energy expansion program of the past thirty years. “The Chinese government is the strongest government in the world,” Lovelock began. “I have a friend that goes over there regularly to advise the Prime Minister on their environmental problems.” Thus began a classic Lovelock anecdote: “They say to him, ‘We’re all doing our best to have more renewable energy than anybody else. We are building nuclear power stations, as fast as we possibly can, so as to not add more carbon to the atmosphere. However if we can’t develop the resources for our people, strong as our government is, there will be a revolution tomorrow. We are in no position to stop using the coal resource until we build enough nuclear or other renewable sources to meet our needs.’” He concluded, “If the Chinese can’t do it, how the heck can the Western democracies do it?” Therein lies what some consider his fatalism about Earth’s health. Is he truly the pessimist some make him out to be? “Quite to the contrary,” he responded. “I’ve been accused of being a pessimist, but no, I don’t think that way.” Lovelock compared the current threat of global warming to his experiences as a student and young worker, during World War II. “In 1940, we were threatened by invasion by a very powerful enemy,” he reminisced. “Some people threw up their arms in horror and said, ‘There’s nothing we can do.’ But it was a very enjoyable time for those who worked hard and faced the threat.” Britain and Lovelock survived the threat, passing to the next generation what he learned from this experience, “It is terrible to think of Global Warming, but it is nevertheless challenging. It can be quite a wonderful time for a lot of younger people.” Some have reported The Revenge of Gaia is Lovelock’s last will and testament. We instead read Lovelock’s masterpiece in a different light. Our conversation with Dr. Lovelock led us to believe his book is his sternest warning to the world’s politicians and scientists to speed up their embrace of nuclear energy in order to avert a very possible series of catastrophic events, which may come to us in the decades ahead. He did say there was “a high probability,” but Lovelock never said “definitely.” In this broad difference, Lovelock yet looks into his cup and finds it half full, not half empty.