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.

A Nuclear Power Plant May Be Next for New Mexico

Federal lawmakers patted themselves on the back, last Friday, in a joint bi-partisan news release issued by three New Mexico politicians: U.S. Senators Pete Domenici and Jeff Bingaman, and U.S. Congressman Steve Pearce. Their celebratory remarks were meant to remind voters why the politicians were in Washington – to bring their state new jobs for at least some of New Mexico’s voters. While the chorus of praise revolved around creating new jobs and bringing millions of dollars into the state’s economy, is there more behind this story, which has not yet been told?

For Senator Domenici, this was another major victory as the longest serving U.S. Senator in New Mexico’s history. The Republican Senator heads the Senate Energy and Natural Resources Committee. Domenici made his views on nuclear energy quite clear in his book “A Brighter Tomorrow: Fulfilling the Promise of Nuclear Energy” (Rowman & Littlefield, 2004). He began pursuing Louisiana Energy Services to move to New Mexico in February 2003, after it became apparent Hartsville, Tennessee didn’t want uranium being enriched in their backyard.

And again, it was Domenici, whose last minute negotiations with Energy Secretary Samuel Bodman, led to the adoption of the Part 810 Waiver. The waiver allowed Louisiana Energy Services (LES) to contact foreign-owned Urenco Ltd about transferring high technology data (the gas centrifuge technology) to LES so the uranium enrichment technology could be utilized at the new facility. U.S. laws ordinarily prohibit such nuclear technology transfers, but Domenici’s intervention brought the project to the NRC approval stage. LES had been on the drawing boards since 1989, having derived its name from the state of Louisiana. The LES partnership was initially formed with the intent of building its centrifuge enrichment plant in Homer, Louisiana.

Senator Domenici’s impact upon the nuclear resurgence in the United States is evident to the entire industry and most politicians. He announced last year, “In 1997, I predicted the resurgence of nuclear energy in the United States. For the last eight years, I have worked to help make that renaissance a reality.” Is there, perhaps, one more achievement Senator Domenici would like to add on behalf of the nuclear industry, before giving up his Senate seat? In his book, “A Brighter Tomorrow,” Domenici bemoans and condemns nuclear fuel reprocessing. With the advent of the Global Nuclear Energy Partnership (GNEP), Domenici may bring a nuclear power plant to New Mexico before he retires.

Domenici’s Democratic counterpart, Senator Jeff Bingaman, is the ranking Democrat on the Senate Energy and Natural Resource Committee. We suspect Bingaman may play an integral role in helping Senator Domenici fulfill that dream. Ironically, Senator Bingaman, who last November was invited to a Santa Fe anti-nuclear environmentalist fundraiser, and which highlighted television mogul Ted Turner, was effusive in saying about the LES enrichment facility, “This will be one of the largest construction projects our state has ever seen. And the economic impact in southeastern New Mexico will be tremendous.” Does Bingaman appear to be playing both sides of the nuclear chessboard?

No, the former attorney, who reportedly once provided legal advice to uranium mining powerhouse, Kerr McGee, is deftly maneuvering between being a good Democrat and providing what he may honestly believe is best for his state. While Bingaman has curried favor among the environmentalists, in May of this year, he accepted, along with Domenici and others, the William S. Lee Award for Leadership at the Nuclear Energy Institute’s (NEI) annual conference, saying, “I share a belief that nuclear power can make a meaningful contribution to controlling the growth of greenhouse gases, while still allowing our economy to expand.” It was his subsequent remark directed at the NEI, which leads us to believe he may be among the first to support additional nuclear growth in New Mexico. He told the NEI, “I am hoping that you will do your part to use those tools that Congress has put in place to ensure that nuclear power achieves its potential as part of our future energy mix.”

The Global Nuclear Energy Partnership

In March 2006, Senator Domenici pledged his support to President Bush’s Global Nuclear Energy Partnership (GNEP),

“With GNEP, we begin to close the cycle on nuclear waste in ways that prevent proliferation and reduce both the volume and toxicity of waste. By recycling spent nuclear fuel, we can reuse the uranium, which is 96 percent of spent fuel, and separate the most toxic radioactive material to be burned in an advanced burner reactor. By reusing uranium fuel and burning the transuranic material in a new generation of modern reactors, we can reduce the amount of waste placed in Yucca Mountain by a factor of 100.”

One of the key technologies in the GNEP program in is the Advanced Burner Reactor (ABR). Deriving its technology from fast reactors, which were used to make nuclear weapons, the concept of the ABR is to minimize the amount of nuclear waste, produced by the nuclear industry’s power plants, to a tiny fraction of content. The concept behind the ABR is to “burn” the transuranic elements, such as plutonium and other long-living radioactive material. In this case, burning the radioactive waste is translated as: destroying the transuranics, by converting them into shorter-lived isotopes. When the transuranic elements are consumed by the ABR, a large amount of energy is released and then converted into electricity.

Instead of burying several football fields of nuclear waste in Yucca Mountain (or elsewhere) for one million years, the toxic waste would be recycled as energy to be immediately used to power homes and industry. Part of the GNEP plan is to combine the current, or advanced, light water reactors with the ABR. As the light water nuclear reactors produce transuranics, the ABRs consume those highly radioactive elements. This leaves less nuclear waste for future disposal, and immediately provides energy.

The major issue in the western United States, about nuclear waste, is “please don’t put it in our backyard.” Several western states have been approached, and even the Carlsbad area was once discussed. Through the ABR technology, it may be possible to minimize the amount of this waste to make it a less undesirable disposal problem. A look at local New Mexico politics may provide an insight as to where the two U.S. senators may be heading with regards to a nuclear power plant for New Mexico.

New Mexico’s Enrichment Facility:
Prelude to a Nuclear Power Plant?

If Federal lawmakers are happy about the proposed uranium enrichment facility, some of New Mexico’s state politicians were still floating on clouds when we talked to them yesterday. New Mexico legislator John A. Heaton, the Democratic representative serving Carlsbad, waxed enthusiastic about the enrichment facility, “It’s the first step in converting this country to nuclear energy.”

Mainly the four state senators and representatives, whom we interviewed, echoed each other’s praise about Urenco’s proposed enrichment facility. “I could not be more pleased,” Senator Carroll H. Leavell told us. “It will have a major, very positive impact on the economy.” At the peak of construction, as many as 1200 workers may be employed. Later, when the facility is operational, about 300 workers will remain. All four were pleasantly surprised that town hall hearings for the proposed facility were overwhelmingly positive, and the local citizens would be delighted to have this facility in built in southeastern New Mexico. Senator Leavell said with disgust, “Most of the (anti-nuclear) protests have come from outside our area, places like San Francisco, DC and Santa Fe.”

Senators Leavell and Gay G. Kernan, the state senator from Hobbs, were invited by Urenco Ltd. to tour an enrichment technology plant in Almelo, Netherlands and left impressed with the company, its honesty and especially the management’s attitude of looking at both sides of the issues. Both state senators also observed the surrounding community failed to be negatively impacted by the enrichment facility.

Looking for deeper insights into what the future might hold, we asked all four about the possibility of a nuclear power plant in New Mexico. All four agreed it would be desirable. Additional comments by the four state politicians led us to believe there might be a second step, following Heaton’s remark about the enrichment facility being the first step.

Donald L. Whitaker, the Democratic legislator from Eunice, the closest town to the proposed enrichment facility, told us, “I would like to see a nuclear reactor in New Mexico.” Whitaker has toured a nuclear facility, and believes one would be great for the state’s economy. “They employ about one thousand and bring high-paying jobs,” he said. Representative Whitaker was not the lone voice among his fellow eastern New Mexican legislators.

“Yes, we want a nuclear reactor in New Mexico,” Representative Heaton said. Heaton is the legislature’s Vice Chairman of the Radioactive and Hazardous Materials committee and a member of the Energy & Natural Resources Committee. He discussed the ABR technology and GNEP, explaining how this would solve the waste disposal problem of nuclear reactors and sway public opinion on nuclear energy.

Senator Leavell took a more cautious approach, explaining how nuclear reactors need tremendous amounts of water. “I don’t think New Mexico could have a nuclear reactor, not with the current technology.” But, he still agreed it would be a good idea if new technologies were developed, which used less water.

Senator Gay Kernan told us, “I don’t know if I should be talking about this, but we are one of the candidates for the GNEP program.” Having heard a rumor that General Atomics may propose building a nuclear power plant in eastern New Mexico, Senator Kernan confirmed such a plant may be on the drawing boards, and telling us West Texas is likely to be developed as an “alternative energy corridor.” She told us, “It would stretch from Carlsbad, New Mexico to the Odessa-Midland, Texas area.” Senator Kernan would also like New Mexico to have a nuclear plant, “I don’t have a problem with that.”

The third politician, joining Senators Domenici and Bingaman, in praising the NRC approval of a draft license for LES and Urenco Ltd, was U.S. Congressman Steve Pearce. Comments, issued by his press secretary on Friday and praising the LES announcement, may foreshadow New Mexico’s next step, “Today’s announcement marks a major milestone in our efforts to cement our state’s leadership role in the development of alternative energy.” What greater leadership by a state than in introducing the new GNEP ABR technology in New Mexico? After all, the state of New Mexico remains the founding home to nuclear technology, where the world’s first atomic technology was designed at Los Alamos.

In a related development, David Watts, President of the University of Texas of the Permian Basin, recently met with Congressman Pearce about developing a helium-cooled nuclear reactor facility, which would be built underground in either Lea County, New Mexico or Andrews County, Texas. General Atomics of San Diego has funded the pre-conceptual design, which is underway and scheduled for completion in August. Waste Control Specialists has a low-level radioactive waste storage site in Andrews County. Realistically, a nuclear reactor in New Mexico is not out of the question. The legislators may get what they want. We believe Senator Domenici will ultimately set into motion the plans to bring New Mexico its first nuclear power plant. It would become his crowning achievement in helping the nuclear renaissance blossom in this country and in his state.