For the world to largely free itself from fossil fuels, I believe nuclear power will have to make a much larger contribution. Nuclear energy isn’t renewable, but it’s abundant and clean, with no carbon emissions, asserts Stephen Leeb, editor of Real World Investing.
In addition to greater recognition of nuclear energy’s importance, the industry could get a massive boost from an emerging alternative to today’s nuclear huge reactors, which can cost more than $10 billion and take more than a decade to build.
Small modular reactors (SMRs) are becoming a viable alternative. Admittedly, SMRs are largely untested on a commercial basis, other than for several prototypes operating in China and Russia. Still, given their potential advantages, they suggest that greater use of nuclear energy may become far more palatable.
SMRs can be built in fewer than five years, with a projected cost per unit of energy far less than for large reactors. Moreover, units can be combined with each other if the energy needs served by a single unit increase. This is an advantage in itself but also means that nuclear could have a much larger role to play in the developing world.
Additionally, SMRs are designed to be much safer than large reactors in that any sign that something unexpected has occurred triggers an automatic shutdown. SMRs need less frequent refueling than their larger brethren and have a longer projected lifetime, with estimates ranging from 30 years to more than 60.
Nuclear energy would be a great bet even without SMRs, but if SMRs live up to expectations, major players in the nuclear industry have not just great but extraordinary long-term potential.
I am adding Cameco (CCJ) to our portfolio. As one of the world’s largest uranium miners and refiners, it benefits from growth in nuclear energy in any form, whether SMRs or major power plants.
What prompted me to add the stock now is its recent acquisition of 49% of Westinghouse, one of the world’s leading nuclear service and design companies. This has vaulted Cameco from a major pure play in uranium to one of the largest vertically integrated nuclear companies in the world.
The acquisition is extremely well timed, not only because of the greater visibility of the need for nuclear energy but also because Westinghouse’s major competitors are Russian-based companies likely to lose market share to Westinghouse because of the Ukraine war. Westinghouse, a descendant of the now-defunct Westinghouse Electric, also brings multiple designs for SMRs as part of its wide-ranging portfolio.
Of more immediate significance, though, is Westinghouse’s large position in China, the country that’s far and away the leader in building nuclear plants. Shortly after Cameco acquired its large stake in Westinghouse, it announced a major uranium supply contract with CNNC, one of China’s largest operators of nuclear power plants.
The market at first reacted negatively to the Westinghouse purchase, perhaps because the company paid for it by increasing its common shares by about 10%. Even with this dilution, though, profits for Cameco could easily reach record levels, well in excess of $2.00 a share by mid-decade or a bit beyond.
Moreover, the 10% dilution seems a small price to pay for the giant leap from being a leading uranium miner to becoming a major force in what will likely be one of the fastest-growing energy sectors in the world over the next several generations.
Nuclear is certainly not a risk-free industry. Though its overall safety record is excellent, any missteps are huge and headline-making, and while newer power plants and especially SMRs sharply reduce chances of an accident, there are no guarantees. However, Cameco’s net cash positive balance sheet provides strong protection against any adverse event.
