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One type of investment I’ll never make

There is renewed interest in uranium mining because of anticipation that the worldwide oversupply of the radioactive element will reverse in the near future. Uranium exploration companies, such as Paladin Resources (ASX: PDN), are hoping that demand from China will make shareholders rich.

There can be no doubt that as China looks to improve its air quality and reduce carbon emissions, nuclear power generation is likely to play a greater role. The fact that nuclear expertise also increases a country’s ability to build nuclear weapons is also driver of demand.

On the other hand, Tokyo Electric Power Co, the operator of the crippled Fukushima Daiichi nuclear plant, and three Mitsubishi group companies will build up coal generation capacity equivalent to one nuclear reactor, by 2020. This follows Germany’s decision to transition from nuclear energy to renewable energy by 2022.  In August 2013, the Tokyo Electric Power admitted that a cumulative 20 trillion to 40 trillion becquerels of radioactive tritium had “probably” leaked into the Pacific Ocean as a result of the disaster. We simply don’t know what the long term impact of this contamination will be.

Some believe uranium is a cleaner, more economical alternative to coal. I respectfully disagree. No nuclear power plant exists anywhere without extensive government subsidy: they are not economically viable without taxpayer support.

In fact, as the graph below shows, nuclear energy is currently more expensive than renewable energy. These prices are based on the actual subsidies promised to developers by governments. This chart doesn’t even consider the cost of managing nuclear waste or mine tailings for the next 50,000 years, or the risk adjusted cost of nuclear disasters. Coal power generation is currently the cheapest form of power generations in most locations, and I do not believe nuclear energy generation will ever hold that mantle.

Source: http://reneweconomy.com.au/2013/graph-of-the-day-nuclear-prices-itself-out-of-market-93110

Source: http://reneweconomy.com.au/2013/graph-of-the-day-nuclear-prices-itself-out-of-market-93110

The claim that nuclear power is clean is just plain wrong. Nuclear power generation is the dirtiest, most harmful form of power generation known to man. Have we forgotten that this technology was originally developed to kill people and destroy cities? Have we forgotten Chernobyl and Fukushima?

Australians tend to underestimate that damage caused by uranium mining itself. Mining uranium is dangerous because the mine tailings are radioactive for at least 70,000 years. The risk of spreading the contamination can cause problems for miners such as Energy Resources of Australia (ASX: ERA) the subsidiary of Rio Tinto (ASX: RIO). ERA operates the Ranger uranium mine in the Northern Territory.

The Ranger mine ceased operating as an open cut mine because the ore body was exhausted, and many of the local indigenous Mirrar people oppose the underground expansion. There are signs that this group will cause more trouble for Ranger as they have voiced their displeasure with the fact that a potentially contaminated truck was taken out of the controlled area. To quote the Sydney Morning Herald, “ERA’s relationship with the Mirrar people is crucial to its survival.”

According to Dr Gavin Mudd of Monash University, there is no former Australian uranium mine that has been rehabilitated successfully; they are all still radioactive no-go zones because of radionuclide dispersal from waste stockpiles and water seepage. Because of the huge expense of rehabilitating a uranium mine, only huge companies such as Rio Tinto and BHP Billiton (ASX: BHP) can afford the liability. This puts smaller companies in a weak bargaining position because they essentially need to partner with a multinational.

For example, BHP has budgeted hundreds of millions of dollars for the eventual rehabilitation of the Olympic Dam uranium mine. Although closure of the mine is a long way off, at least BHP is a big enough company to shoulder any eventual liabilities. Having said that, only time will tell if rehabilitation is successful.

Foolish takeaway

Investors in BHP Billiton and Rio Tinto have some exposure to the price of uranium (which may well rise) without depending on it. While these companies deserve a spot on your watchlist, smaller uranium players such as Toro Energy (ASX: TOE), and Energy and Minerals Australia (ASX: EMA) should be avoided, because they cannot succeed without starting new mines. It’s easy to find better investments that aren’t so likely to cause harm.

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Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of the companies mentioned in this article.

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