Japan's Election Results Have Uranium Bulls Ready to Charge

Energy played an important role in this election, and as the National Journal reports, LDP Leader Shinzo Abe has criticized Democratic Party of Japan Leader Yoshihiko Noda’s goals to eliminate nuclear power from Japan’s energy mix as both “unrealistic” and “irresponsible.”

Federation of Electric Power Companies of Japan (FEPC) Chairman Makoto Yagi echoed this stance in his Dec. 17 statement, which declared the election a “breakthrough event in regenerating the nation” and called for a diverse energy portfolio that would allow Japan to “attain the three Es of energy security, environmental conservation and economy.”

Nuclear Restart Timing Remains Uncertain

Abe’s LDP plans to decide on a general nuclear reactor restart within three years, with a longer-term goal to determine the best overall energy mix for the country in the next ten years. As UPI reports, the LDP is expected to “approve the restarts one at a time, when the Nuclear Regulation Authority certifies them to be safe.” So far, just two of Japan’s 50 nuclear reactors have come back on-line following the Fukushima nuclear power plant disaster. Critics emphasize that the LDP will have to tread carefully on the still-controversial issue and contend with Japan’s regulatory and bureaucratic bodies in accomplishing a wider restart.

But the markets themselves were very quick to respond. World Nuclear News reported a 33% jump in Tokyo Electric Power Co. (9501:OSE; TKECF:OTCPK) shares and an 18% boost in share prices for Kansai Electric Power Co. (KEP:NYSE; 9503:OSE). Australian uranium producers Paladin Energy Ltd. (PDN:TSX; PDN:ASX) and Energy Resources of Australia Ltd. (ERA:ASX) rose 8.4% and 5%, respectively.

Experts Approve

Although national polls have shown that 80% of Japanese favored a nuclear phaseout, the country’s election results told a different story and many commentators are expressing support of the LDP’s economy-focused agenda. Kazuhisa Kawakami, a political science professor at Meiji Gakuin University, argued that “we need to prioritize the economy, especially because we are an island nation,” he told the Associated Press. “We’re not like Germany. We can’t just get energy from other countries in a pinch.”

Across the Pacific, some North America-based analysts are decidedly bullish on a bright future for uranium producers.

Rob Chang of Cantor Fitzgerald Canada commented, “We view the Japanese election results as a catalyst for the uranium market because it is the strongest indication to date that Japan will return to meaningful nuclear electricity use. With the Russia-U.S. highly enriched uranium agreement drawing to a close at the end of 2013 and removing about 24 million pounds (Mlb) of uranium from the market, Cantor Research forecasts a continuous uranium supply deficit for many years.” [See chart.]

Source: Cantor Fitzgerald Research

Dundee Securities Analyst David Talbot agrees, commenting that “the LDP win may be a turning point for the nuclear sector and the catalyst many investors have waited for. Although we believe the uranium price may be the only catalyst some investors will consider, we expect that this news could accelerate the likelihood that at least part of the Japanese nuclear fleet gets back on-line, perhaps even earlier than mid-2013.”

Talbot went a step further, sharing his uranium producer picks on the back of Japan’s election results: “Energy Fuels Inc. (EFR:TSX) is a potential turnaround story—it has been punished the most of the uranium producers this year. But it is now focused on lower-cost, higher-grade production from its Arizona Strip breccia pipe mines, with its new Pinenut mine scheduled for startup shortly and its Canyon project in the pipeline. The company announced in September that it would close three higher-cost operations.

“This is a story has: 1) huge leverage to risking uranium prices; 2) a significant regional resource base; 3) the only conventional mill in operation in the U.S.; 4) no need to spend $150 million to construct a new mill despite receiving its Nuclear Regulatory Commission permits; and 5) vast potential to expand production. . .as uranium prices are expected to rise, given the company’s high leverage to prices, we would expect to see Energy Fuels shares to rise in tandem.”

Talbot has a relatively large coverage universe on uranium producers and explorers, and he shared a few more names on his short list in his ecstatic report published Monday:

“Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) is a top pick in the developer space; this is likely the first U.S. in-situ recovery producer to come on-line next year. Construction is on track and it plans to add recent acquisitions to its pipeline.

“Laramide Resources Ltd. (LAM:TSX) has also outperformed its peers this year as the Queensland uranium mining ban appears set to be overturned. Exploration at its 52-Mlb flagship project continues to deliver.

“Kivalliq Energy Corp. (KIV:TSX.V) is our top pick of the explorers. It has made six discoveries this year alone in Nunavut, and it moves closer to expanding resources toward that 40-Mlb milestone.

“Uranium Participation Corp. (U:TSX) is already on a hot streak, up 11% from last month. . .this is the smallest discount that Uranium Participation has traded since Fukushima, and given its hard assets, we don’t feel that it should be at a discount at all.”

Back on the Table

In a country that has just elected its seventh prime minister in six and a half years, winning a two-thirds majority is not a final victory; it’s an entrance into an ongoing political battle. Opinions are mixed as to how effectively the LDP can carry out its goals, but one thing is clear: Nuclear power is back on the table.

Disclosures:
1) Rita Sapunor of The Energy Report and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Energy Fuels Inc., Laramide Resources Ltd. and Ur-Energy Inc.
3) David Talbot beneficially owns, has a financial interest in, or exercises investment discretion or control over, companies under coverage: None. Dundee Securities Ltd. and its affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by, companies under coverage: Energy Fuels Inc. Dundee Securities Ltd. has provided investment banking services to the following companies under coverage in the past 12 months: Energy Fuels Inc. All disclosures and disclaimers are available at www.dundeecapitalmarkets.com. Please refer to formal published research reports for all disclosures and disclaimers pertaining to companies under coverage and Dundee Securities Ltd. The policy of Dundee Securities Ltd. with respect to Research reports is available on the Internet at www.dundeecapitalmarkets.com.

( Companies Mentioned: EFR:TSX,
ERA:ASX,
KEP:NYSE; 9503:OSE,
KIV:TSX.V,
LAM:TSX,
PDN:TSX; PDN:ASX,
9501:OSE; TKECF:OTCPK,
URE:TSX; URG:NYSE.MKT,
U:TSX,
)