government lies + emerging resourc opportunity

this is and excerpt from the report. i have removed the 3 recommended stocks.

Inside This Issue

• Japan, Germany Aren’t
Really Dumping Nuclear
Power
• Anatomy of a Resource
Opportunity
• Three Beaten-Down Uranium
Stocks with Triple-
Digit Upside
• Portfolio Review


____________________
Editor: Matt Badiali

The S&A Resource Report
December 2012

Government Lies and an Emerging
Resource Opportunity

What are the Japanese doing in Uzbekistan?

For most folks, this isn’t a pressing question...

However, for natural resource investors, it’s one of the most important
questions in the world. And if you know what the Japanese are doing
in Uzbekistan, you know about a tremendous investment opportunity...

A former constituent republic of the Soviet Union, Uzbekistan is a
country in central Asia. It is about the size of California, has a population
of 29 million people, and is loaded with natural resources.

There is a lot of gold in Uzbekistan. The country is a major gold
producer. It also produces large amounts of natural gas, cotton, and
copper. And it’s rich in history. The country’s second-largest city, Samarkand,
was once a major point on the Silk Road.

In its heyday, the Silk Road was the major trading route linking
Europe, the Middle East, and Asia. Valuable commodities like silk,
gold, ivory, jade, and spices were traded via the Silk Road.

However, these days, Japan – the third-largest economy in the
world – has little interest in the traditional commodities that traveled
through what is now Uzbekistan.

The Japanese are in Uzbekistan because they want uranium... lots of it. And just a few months ago, the Japanese
government closed a deal to help fund the exploration and production of Uzbekistan’s large uranium deposits.

Wait... aren’t the Japanese government and the Western media saying Japan is through with nuclear energy
and the uranium fuel needed to produce it? Didn’t the Fukushima nuclear accident of 2011 kill the future
of nuclear energy?

In this month’s issue, we answer that question with a resounding “No.” We will dig through the hysteria and government
misinformation and look at the facts regarding uranium. As you will see, by looking at the facts, we’ll uncover
a big investment opportunity to buy some very cheap energy. The money you put to work today could multiply two-,
three-, even fourfold in a few years...

The Big Lie – How Germany and Japan Have
No Interest in Dumping Nuclear Power

On March 11, 2011, a massive 9.0-magnitude earthquake erupted on the seafloor about 45 miles east of the Japanese
coast. The earthquake let loose a massive tsunami that struck land near the town of Sendai, just north of Tokyo. The twin
natural disasters killed nearly 19,000 people and caused a reactor meltdown at the Fukushima-Daiichi nuclear power plant.


This was the worst nuclear disaster since Chernobyl and
caused a bitter backlash against the nuclear power industry
around the world. It derailed a nuclear renaissance that was
gaining ground as a reliable carbon-free energy source.

In the aftermath of the Fukushima-Daiichi disaster, countries
around the world suspended nuclear power generation and
began hasty reviews of safety systems.

Not surprisingly, Japan immediately shut down its 50
nuclear reactors within weeks of the accident. That effectively
removed 30% of its power supply. In October, in support of
the widespread distrust of the nuclear power industry, Japan’s
government proclaimed the country would be nuclear-free by
2030.

Four days after the accident, German Chancellor Angela
Merkel shut down all of Germany’s nuclear power plants.
Merkel’s decision instantly removed 41% of Germany’s electric
power. Then, on May 30, 2011, she declared none of Germany’s
17 nuclear reactors would be refueled and the country
would permanently close all of its plants by 2022.

This was a complete overreaction. Germany is among
the world’s most geologically stable countries and has no
record of ever being struck by a tsunami. However, the Germans
decided to err on the side of ridiculous...

It turns out that dumping nuclear fuel is much harder to
accomplish than it is for politicians to promise... Cracks are
emerging in the world governments’ anti-nuke façade.

German power costs are rising. It now pays twice as
much money per kilowatt hour as the rest of Europe does.
In addition, the taxes its people pay are up 50%.

And while Germany shut down its own nuclear power
plants, it dramatically increased its imported electric power
from France... a country that generates more than half its
electricity from nuclear power plants. So Germany hasn’t
really cut its consumption of nuclear-generated electricity. It’s
just outsourced the generation to France.

Meanwhile... Japan is discovering its no-nukes promise is
creating a huge financial burden. According to a recent Japanese
government study, it will cost $627 billion to replace the
nuclear power plants. In addition, homeowner power costs will
double to more than $400 per month.

In the meantime, the country is dealing with reduced
power supply. Rolling blackouts are common. And it has
turned to imported coal, natural gas, and oil to minimize the
hole left by shutting down its nuclear reactors. According to
Reuters news service, natural gas imports soared by 17%, coal
imports rose nearly 21%, and crude oil imports were up 7% by
June 2012.

Japan will hold its first election since the Fukushima
disaster on December 16. And it looks like the “pro-nuclear”
party is going to win. And if it does, don’t expect Japan to be
nuclear-free in the future...

As is the case with most political grandstanding... the
Japanese law enacted to phase out nuclear power isn’t decisive
as it’s made out to be. The actual language in Japan’s bill gives
lawmakers an out if “the situation changes.” Moreover, even if
the country follows the bill’s exact terms, Japan will still operate
some nuclear reactors in 2039...

And then there’s Uzbekistan...

Even more telling is that Japan Oil, Gas, and Metals
National Corporation (JOGMEC) – the government agency
responsible for creating stable supplies of key resources – recently
announced a plan with the government of Uzbekistan to
explore for and develop uranium mines in central Uzbekistan’s
Navoiy province. In 2009, the two entities signed a deal to do
the same in the central Kyzyl-Kum region of the country. The
partners discovered about 13,000 tons of uranium there.

That doesn’t sound like actions of a country phasing out
nuclear power.

Looking into the Future

So why are the world’s governments having such a
hard time quitting nuclear power? Once again, basic economics
is overriding political speechmaking...

Coal is the world’s most important fuel for power
generation... accounting for 40% of the electricity generated
in 2010 (the most recent full-year data available)...
Natural gas comes in next at 21% (and rising!). Hydropower
generates 16%, barely ahead of nuclear at 13%.

Global demand for electric power totaled 22,018 terawatt
hours (TwH) in 2010, according to the International Energy
Agency (IEA) World Energy Outlook 2012. Depending on
policy changes, economic development rate, and population
growth over the next 25 years, the study predicts an increase in
electrical consumption between 48% and 88%.

Government policies will drive development of the
various fuels. However, nuclear power plays a prominent
role in all IEA scenarios. In 2010, nuclear power produced
2,756 TwH of electricity. Depending on the scenario
used, IEA projects nuclear power growth between
42% and 117% over the next 25 years. However, I believe
that is a significant underestimation.

This study accepts at face value governments’ fanciful
projection of renewable energy, which would reduce the
role of nuclear power. In the most aggressive scenario, the
study shows non-hydro renewable power accounting for
9,031 TwH in 2025. That is almost twice the volume of
nuclear and nearly 12 times the power production that it


generated in 2010. That is a ridiculous assumption. And
I believe, in real life, that nuclear power will be tapped to
fill much more of that production than in this estimate.

Now... the following table displays the costs of various
sources of electric power in U.S. cents per kilowatt hour
(KwH). Nuclear power is the cheapest source of electricity.

Further complicating Japan and Germany’s anti-nuclear
stance... both countries are aggressively trying to restrict the use
of fossil fuels, like coal, to reduce carbon-dioxide production.
(We’ll leave the folly of that endeavor for another day.)

If you abandon nuclear fuel and coal... you’re left with
limited and expensive options...

“Renewable” energy sources are popular to discuss, but the
only viable one is hydroelectric power. And as the table shows,
it’s more than four times more expensive to operate than a
nuclear power plant. Wind and solar are unproven as mainstay
sources of power for a national power grid... and are incredibly
expensive to build and maintain.

Renewable energy sources also require government subsidy.
In 2011, solar power received $25 billion in subsidies, while
wind received $21 billion, according to IEA. Subsidies for renewable
energy around the world will reach $185 billion by 2020.

So how could Japan realistically fulfill its promise to replace
29% of its electric power supply with wind and solar?

Add to that... the demand for electricity is growing fastest
in places that don’t have the luxury of experimenting with fads
and theories...

The IEA and oil major BP both put out highly regarded
annual energy forecasts. And according to both sets of analysts,
electricity demand represents the largest growth of any energy
sector. World electricity demand is projected to grow between
2.2% and 2.6% per year through 2030, according to the two
major forecasts. And as you would expect, the main sources of
growth are the immense and modernizing economies of China
(38%) and India (13%).

The growth in nuclear power centers on China, India,
and Russia. These huge populations remain among the lowest
consumers of electric power in the world. And in those countries,
nuclear power should flourish, growing at 7.8% per year through
2030. That means the nuclear power demand from those countries
will more than double by 2020 and will quadruple by 2030.

To put that into a more global perspective, the world has
436 active nuclear reactors today with a total capacity of 374
gigawatts (GW). Another 62 reactors are under construction
and will add 63 GW of capacity.

Each gigawatt of increased capacity requires about 200
metric tons of uranium per year. And the first fueling for
new reactors requires between 400 to 600 metric tons of
uranium, according to the World Nuclear Organization. So
the 62 new plants will need a minimum of 25,000 metric
tons of uranium in their first year of production and 12,400
metric tons per year after that.

According to the World Nuclear Organization, total demand
for uranium will hit 67,990 metric tons in 2012. The 62
plants under construction will jack up that number by 18%.

And think about this... another 484 reactors are either on
order, planned, or proposed. The represent 542 GW of electric
power. If those reactors are built, they will more than double
the existing nuclear fleet. China alone accounts for 171 of those
planned reactors. India accounts for 57 and Russia the other 44.

As you can see, as the nuclear fleet grows, the demand for
uranium fuel explodes.

At the same time... the supply side of the equation isn’t
keeping up, thanks to the economic turmoil, huge capital costs,
and negative public sentiment toward nuclear power.

Suddenly, uranium supply looks extremely tight...

The highest-profile project was BHP Billiton’s decision to
delay its Olympic Dam mine expansion. That took 32 million
pounds of uranium per year off the table. In addition, the Kazakhstan
government shelved about 10 million pounds of new
projects. Here are other notable delayed or shelved projects...
(The producer is noted in parentheses.)

• Trekkopje – 8 million pounds
per year put on hold (Areva)
• Imouraren – 11 million pounds
per year put on hold (Areva)
• Double U – reduced by 4 million
pounds per year (Cameco)


As you can see, about 65 million pounds of uranium per
year of expected supply has been waylaid. This could create a
substantial supply pinch over the next few years. That puts a
premium on companies with current or near-term uranium
production. That is what we want to buy right now.

Source

Cost per KwH

Source

Coal Steam

$0.036

EIA

Nuclear

$0.024

EIA

Hydroelectric

$0.092

EIA

Gas Turbine

$0.049

EIA

Wind, Onshore

$0.04 to $0.15

NREL

Wind, Offshore

$0.07 to $0.20

NREL

Solar, Photovoltaic

$0.15 to $0.59

NREL

Solar, Concentrating

$0.06 to $0.30

NREL

Geothermal

$0.04 to $0.13

NREL

Data from the U.S. Energy Information Administration (EIA)
and U.S. National Renewable Energy Laboratory (NREL).







S&A Resource Report Issue 85, December 2012

The Anatomy of a Resource Opportunity

Despite the factors that clearly show uranium is now in
line for a long move higher... the post-Fukushima revulsion
directed at nuclear power hurt the uranium market.

As ultra-successful resource investor Rick Rule, founder
of Sprott Global Resource Investing, pointed out in a recent
interview... When the Japanese shut down their nuclear power
plants, they took 20 million pounds of demand off the market.
And the decision added 15 million pounds of supply, as the
country’s power companies sold off their surplus fuel to generate
revenue that wasn’t coming from electricity.

So that short-term drop in demand and spike in surplus
supplies dumped on the market killed uranium prices over the
past year. That’s why we have the opportunity we do today...

The chart below is of Cameco (NYSE: CCJ), the world’s
largest uranium miner. As you can see, its share price fell 60%
from its February 2011 high to its November 2012 low. After a
brief rally at the start of 2012, Cameco’s shares fell another 38%
from February to November. Every publicly traded uranium
producer sports a nearly identical stock chart.

This is a fantastic opportunity in the uranium sector...
here’s why.

Investors have not always hated uranium... In 2006, it
was all the rage. After spending most of the 1990s trading for
less than $15 per pound, it finally began to rise. From January
2005, when uranium traded for $20.50 per pound, the
resource shot up to about $135 a pound in mid-2007... a more
than 550% run-up.

In the early 2000s, before the uranium’s big swing higher,
Rick was talking up the nuclear fuel’s potential. He told
anyone who would listen to him that uranium was far too
cheap. Miners were losing money, and that the situation had
to change. And it did...

Then came the 2008 financial crisis, which destroyed assets
of all kinds... Uranium had just started to recover when the
Fukushima catastrophe struck. Significantly, throughout all the
bad times for uranium over the past four years, the resource’s
price hasn’t fallen below $40... That seems to be the bottom the
market won’t let it fall below for any significant time.

Now, Rick is back talking about uranium again. And his
story is the same as it was in the early 2000s. The cost of mining
is much higher, than it was a decade ago. Uranium prices
are not keeping up. Miners are losing money again.

According to Rick, the “term price” of uranium, which
is the price paid for long-term sources of supply contracts, is
$65-$70 per pound. The spot price is less than $50 per pound.
He and his analysts came up with a production cost of $85 per
pound for miners. In other words, miners are losing nearly $40
per pound selling at the spot price today.

Things have to change...

To see if I could find the same value Rick quoted... I took
a closer look at the largest uranium producers. The table below
is a list of all the significant uranium miners in the world...

As you can see, four main producers dominate the sector:
Areva, Kazatomprom National Atomic, Cameco, and Uranium
One/Rosatom. Two of them are state-run companies, Rosatom
(Russia) and Kazatomprom (Kazakhstan). After that is a field of
small contributors.

While all these companies publish mining costs, I
wanted a more inclusive figure... So instead, I used the “cost

20122011201020092008200720062005200420032002$10$25$40$55$70$85$100$115$130Price
per
poundURANIUM PRICE©RightWayCharts.com

AprJulOct2012AprJulOctAprJulOct2012AprJulOct$17.50$20.00$22.50$25.00$27.50$30.00$32.50$35.00$37.50$40.00$42.50Share
priceCAMECO(CCJ)
Cameco shares have fallen
steeply since February 2011
©RightWayCharts.com

Company

2011 Production
(Million Pounds)

% of Total Mined
Production

Areva

23

16%

Kazatomprom National Atomic

23

16%

Cameco

22

15%

Uranium One/Rosatom

18

13%

Rio Tinto

11

8%

Navoi Mining

8

6%

Paladin

6

4%

Energy Fuels

2

1%

Others

20

14%







Issue 85, December 2012 S&A Resource Report

of revenue,” which includes all the business’ costs, instead of
just the mining costs.

Areva produced 23 million pounds of uranium and
spent almost $163 per pound doing so. And it was by far
the most expensive. Paladin Resources mined 5.7 million
pounds of uranium at a cost of almost $90 per pound.
Cameco produced more than 22 million pounds of uranium
last year at a cost of almost $73 per pound. Uranium One
was the most efficient producer. It mined over 10 million
pounds of uranium in 2011 at a cost of $58 per pound.

The volume-weighted average cost of uranium for this
group – which represents 43% of the uranium mined in
2011 – came to nearly $106 per pound.

Even though my number is larger than Rick’s, it tells the
same story... producers cannot sell to the spot market without
losing money. At $40 per pound, they are losing $66 on every
pound they sell. That is a great way to go bankrupt.

The spot price simply has to rise... eventually.

That is why we’re going to take a hard look at the universe of
uranium companies. This month, we’ll focus on those companies
that are either in production, or close to production. They are the
ones that will benefit most from a rise in the spot price.

The opportunity in uranium is so promising right
now that we are going to put a slate of them in the model
portfolio. These companies are so beaten-down that we
won’t risk more than 12.5% on any of them... and our
potential gains are as much as 300% if they simply recover
to their pre-Fukushima prices.