A New Glow to Nuclear

The Warming Global Market to Deep Yellow and Centrus.

One of the up sides of a down market is that -- strictly speaking on a legit risk-adjusted basis -- scary times are the time for scary bets. How much riskier is that risky-sounding idea in a period when loading up on Google or Apple or even dumb old bonds is pretty darn risky indeed?

And in terms of a risky bet worth a fresh look these days, it’s pretty darn tough to beat the nuclear power industry. Yes, friends, we really are going to talk about the apparently dying business of putting just enough processed uranium into a tank of water to boil that water, without blowing up the world. And for good reason. Organizations that track global nuclear power production say the market has been growing since 2010 or so, according the World Nuclear Association. 

Total power output is still below peaks set about ten years ago, there are 53 new reactors planned, out of about 450 or so total reactors in service. And while many of those 450 are being shut down, and many countries like Germany have essentially stepped away from nuclear technology, after nearly a decade of declines in reactors output and uranium prices, nuclear power has become, at least by the numbers, a growing market. 

There are two deep value companies to take a peek at. One is Centrus (NYSE: LEU), an Bethesda, MD, based nuke services, that has been beaten to death over the past half decade years, as the nuke industry has downscaled. The stock currently trades at $2.50 or so for something like a $20 million market cap. And with the poor earnings, and tough prospects for fresh energy work in America the ticker probably has some more pain in it, before it recovers. But this is a real business, that will find a place in the slowly recovering market. And for those who seek long term exposure to the nuclear power industry, it’s a nice idea. 

But let’s be honest, who really cares. 

What attracting us to nuclear is the pure speculation of it all, that only bad times can make logical. We think, now is the right moment to mount the horses, deputize your buddies and charge off into wild west of investing in the fuel behind the nuclear power industry: Uranium mining. That’s right partner, we want to take a deep long look at Deep Yellow (OTCMKTS: DYLLF), an Australian uranium mining company, trading as the old school pure risk penny stock on the Australian Stock Exchange.

Now before you laugh -- or after you are done laughing -- keep in mind that this ticker is now trading at a princely $.47 Australian, whatever that is. Up about 100 percent from $.27 Australian, that we saw earlier this year, That is when trading volume spiked with announcements of a “encouraging results” in a potential Tumas, Namibia, mine in Western Africa. Note how careful we all have to be about even talking about results of mines. Nobody goes one more step on this stock until reread Business Adventures: Twelve Classic Tales from the World of Business. In particular the chapter called "A Reasonable Amount of Time" that tells the story of Texas Gulf, a large sulphur miner that in 1963 bungled the announcement of a new Canadian mine. And how rumors and mismanagement led to a serious SEC investigation, and all sorts of new rules about talking about mining. 

Just to make sure there is no misunderstanding about what can go wrong with mining uranium, the New Mexico Bureau Of Geology and Mineral Resources offers this excellent primer. And let's not forget that uranium is traded by private brokers, mostly. So like a lot of bonds, and stocks these days, these markets are not transparent. So what uranium may -- or may not -- be worth, can takes real sophistication and research. 

You have all been officially warned. U.R.A.N.I.U.M. is R.I.S.K.Y.

But given all that preamble of doom, there is still a lot to like here with Deep Yellow. First off, current Uranium prices are trading at historic prices, that is in the $20 range found in the 1980s. Second, the peak in prices of the stuff was nearly $130. So there is a lot of head room here. And lastly, Deep Yellow uses low-impact, low-cost drilling schemes that bore single 8-inch holes roughly a mile deep. All of which, is run by trucks that that can drive down the road and park in open fields. Exploring for Arctic Oil, this is not. 

We are sure there is much to explore with some fashioned shoe leather reporting here. We are just putting this idea out. But still, considering we just finished one of those bummer weeks when both stocks and bond fell, how speculative is a reasonable targeted bet on a decorelated commodity with real demand that measured return in the decades?

Deep Yellow probably shows how deeply messed up our days are. But in a totally twisted way, it does make sense.