16/03/2011 - 08:50

Analysis: uranium a big opportunity

16/03/2011 - 08:50

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Buy when others are fearful. That piece of advice made Warren Buffett one of the world's richest people, and it could make a fortune for anyone prepared to plunge into massively discounted Australian uranium stocks.

Buy when others are fearful. That piece of advice made Warren Buffett one of the world's richest people, and it could make a fortune for anyone prepared to plunge into massively discounted Australian uranium stocks.

The challenge is to believe that radiation leaking from Japan's earthquake-damaged nuclear power plant will not prove fatal to the worldwide nuclear industry.

On balance, that's a fair assumption because despite days of negative publicity, and calls from a number of governments for inquiries into the nuclear industry, there is an even greater problem which has been temporarily pushed into the background - an insatiable demand in every country for more electric power.

Nuclear, love it, or hate it, has become an essential part of electricity production around the world.

If it was turned off tomorrow the world would endure rolling black outs - until more coal and gas-burning power plants were built, sparking an even more intense debate about carbon emissions.

As politically unpopular as uranium is today the reality is that the world needs it as a fuel source, and while some countries will vote to not embrace nuclear they will also be voting to price themselves out of world markets thanks to high electricity costs, or power shortages which limit industrial investment.

When the dust settles in Japan it too will be forced to face the reality of trying to run an economy on high-priced fossil fuels, such as oil and gas, or to revert back to nuclear and pray that better design leads to stronger reactors, and that another magnitude 9 earthquake doesn't happen too soon.

Alternative energy sources such as wind and solar are simply not an option for Japan. It must have big, base-load, power stations to drive its factories, and as it emerges from the current crisis it will need more power than ever before, and it must be cost-effective power.

The bloodbath which has been Australian uranium stocks this week will serve two purposes. It will kill most of the no-hopers, companies that have simple jumped aboard the uranium express because it seemed like the best way to make a quick profit from gullible investors, and it will leave a hard-core of quality companies.

One man prepared to stick his neck out and suggest which companies will survive and prosper from this latest shock to the uranium industry is Warwick Grigor from BGF Equities.

A perennial resource sector bull Grigor was working on an update to his regular uranium sector review last week, before Japan's earthquake. Earlier today he stuck his neck out further than ever, telling clients that the real disaster with Japan's nuclear problem was "the media beat-up".

"This is a speed bump to the aspirations of the nuclear power, not a termination of the growth phase," he wrote.

Grigor's wrong about the beat-up. The Fukushima crisis is real and has been reported responsibly by most media outlets.

He's right about the inevitability of the uranium rebound, and that means investors with a reasonable appetite for risk will be looking for bargain basement buys, while hoping that they're not buying a falling knife.

Grigor's top picks in the uranium sector are A-Cap Resources, Energy and Minerals, Extract Resources, Peninsula Energy and UraniumSA.

He could have added "get 'em while there hot", but that was obviously a step too far in a nuclear-spooked environment even for a uranium bull.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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