Precious Metal

If oil is "black gold," is uranium the "new gold"?

It's a question worth asking, even as gold prices are soaring. Gold is the traditional precious-metal hedge against governmental mismanagement of paper currency. That's because every ounce of gold ever mined remains in existence. It never corrodes or decomposes, and can never be created from other materials. That makes gold the perfect alternative to paper money that is created and backed only by government promises.

But you can't use gold to keep you warm in the coldest winter, or keep you cool in the hottest summer. It won't keep the engines of industry running, and it won't provide the electricity to keep your computer humming. For that, we need energy -- an ever-increasing amount of energy, as populations multiply and citizens of China (and India and Vietnam, and more than half of the globe) demand the basics of modern life.

It's all that demand, plus the potential scarcity of fossil fuels, that the world must now consider. No one knows when we will "run out" of oil, or what modern techniques might be invented to squeeze it out of shale or drill more deeply into the earth's core. But since much of the known oil reserves are concentrated in politically and militarily unstable parts of the world, it seems wise to consider Plan B: nuclear energy.

Forget for the moment the politics of nuclear energy and the emotional fears of disaster, and consider the reality of energy demands. One man has been on the forefront of writing about this issue for the past several years. James Dines has labeled himself "the original uranium bug." It's a takeoff on his reputation as "the original goldbug," for which he was known in the 1960s, when gold was trading at $32 an ounce.

Since Dines began writing about uranium and recommending uranium stocks to readers of his newsletter, the price of uranium has soared from $7.10 to over $41, an increase of more than 400%. Dines says this is only the start of the move. In a section of his annual forecast issue, he writes about what he calls the "Coming Great Switch to Uranium":

"Nuclear energy produces zero greenhouse gases, largely comes from deposits in politically stable and friendly countries (Canada, Australia, America), there is enough uranium for a billion years using breeder reactors, soaring prices for fossil fuels has left nuclear power increasingly cheap on a relative basis, and nuclear power could be used to split ordinary water into its components -- oxygen and hydrogen -- to power fuel cells for cars for everybody in the world," he writes.

Dines acknowledges that there is a problem with radioactive waste, and only half-jokingly suggests we blast it into space on a rocket. But he figures we'll come to some solution, noting: "Either that gets solved or we shiver in the dark, so coming generations will have to solve that problem somehow."

In the meantime, Dines has led his subscribers (including this writer) into investments in a variety of companies that either mine uranium or are involved in building reactors around the globe. He points out that the U.S. now gets one-fifth of its electric power from its 103 commercial reactors, and it's the world's largest producer of nuclear-generated energy.

France gets 78% of its power from nuclear, followed by countries such as Lithuania, Slovakia and Belgium, each of which gets nearly two-thirds of its power (though a far smaller aggregate amount) from nuclear energy. And the growth in demand for nuclear fuel is coming from unexpected places, such as Bulgaria, which has announced it will build its seventh nuclear reactor and export energy to Greece, Turkey and other neighbors.

China is at the bottom of the chart of nuclear power generators, only now beginning to build reactors. But just last week, Australia signed a deal with China allowing the export of Australian uranium to the Asian behemoth.

Nuclear power is clearly a political as well as economic issue. President Bush promised aid to India for commercial nuclear technology, even though that country has not signed the Nuclear Nonproliferation Treaty. That concession is designed to keep India from allying with Iran, a current provider of its oil. As part of that deal, the president guaranteed that America will provide uranium for India's needs, without regard to our own shortage of supply.

Where will all this uranium come from? From mining companies in the U.S., Canada and Australia. And, along with the price of uranium itself, the stocks in those companies have already soared. Dines' proprietary index of uranium stock prices is up 1,112% in the past few years. His explanation is that even though there is an abundance of uranium in existence, higher prices and demand will encourage production and profits.

Dines' recommended list includes companies such as Cameco ( CCJ) (up 1,839% since he recommended it several years ago) and Fronteer ( FRG), as well as Pinetree Capital, Mega Uranium and Laramide Resources, which trade on Canadian exchanges. If demand for uranium continues as predicted, these stocks will become as familiar as JDS Uniphase ( JDSU), Cisco ( CSCO) and Brocade ( BRCD) were in the late 1990s. (And, of course, you recognize the risk inherent in these speculative situations, having learned the lessons of history.)

So, far from recommending uranium stocks as a speculation at this point (though Dines considers this just the beginning of the move), this is a wake-up call to the issue of energy independence that will dominate our future. And I write this column to give Dines some well-deserved credit for his farsighted investment advice, once again. That's The Savage Truth.

At the time of publication, Savage was long Cameco.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column by the Chicago Sun-Times is nationally syndicated, and she released her fourth book, The Savage Number: How Much Money Do You Need? in June 2005. Savage also was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of the McDonald's and Pennzoil corporations.

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