Is Japan Making Nuclear Power Comeback? (Impacts on Uranium Investing)

Investors are hoping that nuclear power is making a comeback in Japan, and the Uranium industry is also waiting in suspense for what they hope to be a resurgence in the market. Uranium CEO Brandon Munro discusses whether this is the catalyst we've all been waiting for. 

Prior to 2011, Japan used to be the frontrunner in nuclear power innovation - accounting for more than 30% of the country's total electricity production with plans to increase to 40% by 2017. Nuclear power energy was a clear national strategic priority in Japan. 

However, when a 15m tsunami hit the coast of Fukushima in 2011, wiping out 3 nuclear reactors, the global course of nuclear power was disrupted. 

Not only did the price and demand for uranium drop, but so did the public's faith in nuclear power. The debate became strongly divided between 'pro' and 'anti' and Japan's government decided that it was best to close nuclear reactors nationwide, 50 in total.

Within 14 months of the accident, Japan's nuclear generation had been brought to a standstill pending regulatory change.

9 years on and Japan is slowly reopening the reactors, with 16 reactors at 9 nuclear power plants currently on track for operation. These new reactors have had to comply with government requirements adopted after Fukushima in the event of an accident. 

These aseismic (ground not characterized by earthquake activity) measures include:

1. Thorough investigations.
2. Seismic design considering even an extremely rare earthquake.
3. Detailed analytical evaluations.
4. Confirmation of safety of bearing ground and surrounding slopes.
5. Confirmation of safety against tsunami.
6. Construction of a nuclear power plant on ground with sufficient bearing resistance.
7. Automatic shutdown function.
8. Demonstration of earthquake resistance and understanding of seismic limits.

Matt and Brandon discuss this news from Japan and talk about the approvals required and Japanese politics involved in the reactors actually coming into production.

Is this the catalyst the sector is waiting for or are people getting a little overexcited?

The uranium market is responsive to catalysts and there’s so much tension building up in the sector, a catalyst could really have quite a dramatic impact, at least on equities in the short-term.  There are a number of catalysts that could happen and the trick is to put them into context.

Transcript excerpt from Brandon Munro #33

Matthew Gordon: I’m going to go to the shores of Japan now. It is with regards to these 16 reactors at these 9 nuclear power stations, which have cleared Japanese Government requirements. Now I think people are getting quite excited about that but again it’s a little bit early day isn’t it?

Brandon Munro: Yeah, I’ve seen people jumping on the headlines a bit. I think we just need to remind everyone to calm down a bit. We’re talking about Japan here. There are several layers of approvals required that these reactors need to push their way through and there has been a lot of inertia in the Japanese Government approval system and that’s been chronic. It is now, as the headline would suggest, we’ve moved past that.

But there’s still a level of approval that is required. In most cases, there's town level approvals required. There’s a lot of politics at play here. So, look I kind of take the view that yes, it is moving forward but I’ll see it when I believe it on a reactor-by-reactor basis. What it does do though is it reminds you that for the reasons we talked about a couple of weeks ago, Japan’s now committed to being carbon neutral and they do have a significant reactor fleet that will turn back on over time. In fact, that will need to build new reactors or extensively deploy SMRs in order to achieve the very smallest of their nuclear deployment goals, to achieve that net-zero by 2050.  

The  2011 Tohoko earthquake and tsunami caused widespread damage and devastation

Matthew Gordon: The thing I was thinking while you were talking is the amount of the boy who cried wolf that’s gone on in our space for the last few years. We’ve talked about multiple catalyst moments. We’ve talked about multiple advances around the world, take this one for instance. You used the phrase, 'people jumping on headlines'. I think people looking in will get excited, so I'm hoping they're getting excited for the right reasons, for the fact that the supply-demand numbers that we showed in that very simple graph, that's what's it about. If we can understand where we are with regards to inventories, it helps.  

But I don’t think it’s helpful when certain parties, certain promoters, jump on headlines to try and garner some sort of support or some sort of interest. It’s quite promotional, it’s slightly misleading and after a few of these, people get a little bit wary and therefore I don’t think in the long run it’s the right way to go. I think it’s solid enough in its own right.

It’s just a case of, like we do every week, just understand the stories, talk about the stories. You don’t need to, what is it, make a silk purse out of a sow’s ear. Do you know what I mean? Do you know what I’m getting at? I do get frustrated when I look at the Twitterarty who do try and create moments which are just not moments, they’re just another bit of data which collectively adds to the story. But they don’t need to be an event in themselves.

Brandon Munro: Yeah, I reckon I agree with most of what you’ve said, but I just want to temper it with a couple of comments there. Sitting back and kind of just taking catalysts if and when they come is the luxury of someone who’s already positioned long in this sector. We are in a sector or in a market that is responsive to catalysts, at least in the short-term and because there’s so much tension building up in this sector, a catalyst could really have quite a dramatic impact, at least on equities in the short-term.

Now, I’ll give you an example. So, Bannerman, for example, I came into the CEO role in March 2016. The stock was trading at $0.03; we had a pretty tough year. We were really in the wilderness when it came to Uranium in those days.

But we managed to raise at $0.03, so we didn’t dilute below that in about November 2016. In January, 2 months later, not even 2 months later, Kazatomprom announced the first of their production cuts which was only 10% at that stage. Within days our stock traded to $0.10 and on huge volumes, so then it took quite some time before it drifted back down and as you know we’ve made sort of success of highs generally until COVID hit us.

So, it’s a very springy sector and catalysts really count if you’re short or if you’re not exposed to the sector. So, that’s what I would say about it. There are a number of catalysts that could happen. The trick is to put them in context. These are possibilities. These are potentialities. These are events that you need to be backgrounded on so if they happen you can react to them.

So, the biggest catalyst that I’m watching at the moment is Kazatomprom giving negative guidance about their production for 2021. So, far they’ve held off on changing guidance and we talked about that with my theory last week. It may happen, it may not happen. It's a responsibility of an investor to inform themselves about this so that if they wake up and they see that happen and the market's snoozing, well that is a buy signal, a serious buy signal and they should be going for the stocks that give them the maximum possible leverage, either across a timeframe that they're looking at trading. If they’re on a three-day trade, to take one end of the extreme, then they must be already across the stocks that they will buy when they see a catalyst like that.  

Equally, if they're looking to build a portfolio that's in the longer term they need to be across the stocks that will give them possibly their last opportunity to acquire longer-term stocks at these sort of prices, before that catalyst then, if it comes, generates a successive uprating and rerating of that stock within the broader sector.

The 16 reactors at 9 nuclear power plants that have cleared government requirements.

Matthew Gordon: I guess where we’re differing is, how do you define the word catalyst? When I see commentary like this Japanese story going, come on boys, this is the start of the bull run, no it’s not. That’s not a catalyst moment. Because as we’ve just talked about, there’s a process the Japanese Government’s got to go through. There’s timing implications. I think there’s much more important things out there in the marketplace which are going to be a catalyst for price recovery for contracts being signed and utilities starting to move.

So, I guess what I’m saying is, I don’t like the overpromotion because people get caught out with that. Like I’m not going to name names here, but there’s been a couple of companies been a little bit vocal this week about it.

I’ve got to be very careful here. I don't think much of their projects, I don't think they've got a lot, but I think they talk a lot, overpromote and they're using this as a means of generating additional attention and buying of their share price which is again I think way overhyped. I think let people work out what they think that or who they think that might be, which companies they think that might be. So, generalists coming in need to just temper that.

As I always say, do your homework, have a look around, see who the players are, understand what the timing needs to look like, and if you want to go early and play the long game, that's fine. There are some good buys out there right now. Or if you want to come in slightly after things tighten up, you need to be aware of when that could be. So, I guess we’re probably saying the same thing, it’s just a question of what some people call a catalyst and what are actually catalysts.

Brandon Munro: Yeah I think so. I’m perhaps being a little bit more polite about it than you are.

Exciting news as it is, this may not be the catalyst moment that the uranium market is waiting for just yet. There is a process the Japanese Government has to go through with consequential timing implications. There may be more important factors in the marketplace which could be the driver of price recovery for contracts being signed and utilities starting to move.