Uranium Juniors and Portable Power

--The best reason for Queensland to be interested in new uranium mining is that there is more money in it. Billions more. And for a state that’s running out of water, royalty and tax revenues from the export of uranium ore is more than welcome, on top of already fat coal royalties.

--Maybe with all of that money Queensland can build a fleet of nuclear-powered desalination plants, using the abundance of one resource (uranium) to compensate for the lack of another resource (fresh, delicious, potable water.) It’s just a thought we had, maybe because we are reading Isaac Asimov’s Foundation trilogy.

--Asimov is a great futurist. We, however, have no idea what the future holds. But a bevy of smaller exploration companies is snatching up properties around Mary Kathleen, and that is worth your attention as an investor. Summit Resources (ASX:SMM) has discovered about 34,000 tonnes of established uranium resources at its Skal and Valhalla deposits near Mt. Isa. Those are co-owned by Paladin. According to Bromby, the only other established uranium deposit in the area—for now—is Laramide Resource’s (TSE:LAM) Westmoreland project, with 29,000 tones of uranium.

--More speculators are coming. Matrix Metals (ASX:MRX) is working a joint venture with Deep Yellow. And other companies like Universal Resources (ASX:URL) and Monaro Mining (ASX:MRO) won’t be far behind. That’s all we have to say about the matter now. But we hope to have put the finishing touches on our own in-house report on the Aussie uranium industry later this week. Watch this space.

--All this talk of more uranium to power large electricity-generating nuclear plants falls squarely in the “M” category of “more” energy in our MESI formulation. But “M” could just as well equal “massive.” The scale of new energy projects required and planned across the globe is staggering. And we read today about a proposed merger right here in Australia between AGL (ASX:AGK) and Origin (ASX:ORG). The combined entity would create, at $14 billion, Australia’s largest gas and electricity supplier.

--Our interest in this is more than passing, as AGK featured prominently in the most recent edition of the Australian version of Outstanding Investments. It’s a direct play on consolidation and eventual expansion of the Australian electricity infrastructure. It’s a global trend with local consequences. But big centralized solutions and improved efficiencies aren’t the only investment opportunities presenting themselves in the energy market. There is also a growing market for remote, redundant, and portable power solutions.

--“As Australia sweats through another sweltering summer,” Annabel Hepworth reports in today’s AFR, “the threat of blackouts has driven a growing number of small businesses to buy their own generator…Sales of back-up generators have been increasing by at least 15 to 20 per cent for the past few years…These sales have especially burgeoned in Western Australia thanks to the mining boom, while on the east coast, the fast-growing coal seam industry as driven demand.”

--When we think of the demand for back-up power sources we think of hospitals, hotels, restaurants, and grocery stores…any business or organization which cannot, for commercial and legal reasons, afford to put itself at the mercy of the public power grid. It’s one thing to have the power go out in your hotel room in Hobart on Christmas evening (as happened to your editor). It’s quite another to have dialysis machines fail, gas pumps cease to function, or gelato to melt in thick, sweet, pools of pastel.

--“There has been a definite increase from smaller businesses, and also in the domestic market from people wanting to put generators in their homes,” says Adrian Reedman from Power Systems Australia. Hepworth continues, “The trend is particularly clear during summer. In storm-prone regions, the strong winds, torrential rains and lightning can trigger outages. Electricity networks come under the most strain during ‘peak demand’ periods when energy guzzling air-conditioning systems are switched on. Blackouts in most states in recent years—particularly in Queensland in 2004 and Victoria’s Moomba gas crisis—and the threat of terrorist strikes on energy infrastructure are other demand drivers.”

--Our research in this area has led us to a pretty obscure technology, solid oxide fuel cells. They find themselves competing directly with traditional generators to provide back-up power to those worried about disruptions to regular electric supply from the grid. “More and more companies are using the stand-by generators,” says Noel Edwards of Queensland-based Total Generators. “They are placing more and more importance on reliability in this electronic age.”

--We see two tracks of investment opportunity in the energy market, then. The first is the massive scale projects involved in traditional fuel sources like gas, oil, coal, and nuclear. These fuels use the existing infrastructure and may require massive new additional infrastructure, which must be paid for either by the private sector or the public. Parallel to this is the development of a portable and distributed power industry that works whether the public sector investment happens or not.

--Even if government funded infrastructure never materializes (or bans on new uranium mine are never lifted) there is still plenty of private sector opportunity in the alternative energy market. The demand for electricity won’t be destroyed if the centralized infrastructure projects never materialize. Instead, the demand will be dispersed, or de-centralized to more remote, portable power solutions, which include fuel cells, wind, water, biofuels, and more.

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