After the 2011 Fukushima nuclear disaster, Japan shut down all of its 50 nuclear reactors. Not coincidentally, the uranium price also plunged from $68 to around $35. With a Japanese reactor restart now being considered, a growing global demand for power combined with ever-increasing pressure to reduce pollution may see uranium miners shine.
In a nation once shattered by atomic bombs at Hiroshima and Nagasaki, nuclear energy has always been a contentious issue in Japan. After a severe radioactivity leak at Fukushima, shutting down the nation's nuclear power apparatus was the only viable political option for policymakers – and there is still stiff voter opposition to any restart.
Fortunately for uranium miners, the current Japanese government is moving away from plans to abandon nuclear power entirely in favour of fostering economic growth by retaining uranium as a cheap, clean(-ish) energy source. Given that Japan operates roughly an eighth of all the world's nuclear reactors, it is also the source of significant demand for the radioactive material.
With India, Russia, China and South Korea all building more nuclear plants to provide for their growing nations, Japan considering restarting its power plants and a number of other countries toying with the idea of increasing their nuclear energy exposure, the coming years are expected to create a uranium supply shortage. The number of nuclear reactors in the world is increasing steadily, with over 60 being built this year, added to an existing 435 (an increase of around 14%). A number of plants are also being refitted for increased capacity worldwide.
With the recent fiasco at the Energy Resources of Australia (ASX: ERA) Ranger uranium mine in the Northern Territory casting a pall over future underground production, the winds of chance may provide an honourable push to other Australian uranium producers such as Paladin Energy (ASX: PDN), BHP Billiton (ASX: BHP) and future miner Toro Energy (ASX: TOE), who is set to begin production in 2016.
With the Ranger uranium mine being the fourth-largest in the world (and the largest in Australia), a reduction in future output can only be good news for other miners if the world is heading into a uranium shortage. If the Aussie dollar goes significantly lower, it may make them appear even more attractive. One note for investors – BHP is not the best way to go for straightforward uranium exposure as this element makes up a very small part of its profits, and other uranium producers such as Deep Yellow Limited (ASX: DYL) and Black Range Minerals (ASX: BLR) have significant overseas holdings, potentially mitigating currency benefits.
Foolish takeaway
Watch and wait for the early months of next year to see if Japan looks like it is restarting its nuclear reactors, and also watch to see if there are any long-term effects to production at ERA's Ranger mine. Greater construction and refitting of nuclear reactors worldwide will also increase uranium demand – the nuclear card is even back on the table here in Australia. Now is not quite the time to buy until we see additional factors coalesce into a more certain outcome, but if you own shares at today's prices already, I probably wouldn't be selling.