Making Money on the Global Warming Crisis

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Making Money on the Global Warming Crisis

Bad weather may be heading our way. Many very smart voices have raised their
volume over the number of alarming red flags pointing to a worldwide
environmental catastrophe coming in a few years or decades hence. One voice,
coming from the sharp mind of James Lovelock is resounding across the world'
s media nearly every day. His solution: get more nuclear reactors online and
sequester the carbon dioxide emissions as fast as possible.

What's the alternative? Move to the Arctic Circle, where you may someday
bask year around with temperatures pleasantly at 74 degrees Fahrenheit.
According to findings recently published in the journal Nature, about 55
million years ago, there was something called the Paleocene Eocene Thermal
Maximum (PETM). In this PETM phenomenon, the entire Earth was heated up by a
gigantic release of greenhouse gases, like carbon dioxide. Lovelock has
insisted we may see that kind of hot later this century.

Now, another brainy man, with whom we have many chats this year, has issued
a special 56-page report, entitled "Investment Implications of an Abrupt
Climate Change." Co-authored by Market Strategist Kevin Bambrough and Eric
Sprott, Chief Executive and Portfolio Manager of the world-famous money
management firm which bears his name, they present a compelling argument as
to why and how global warming and climate change is going to dramatically
impact our financial world. You are well advised to read it. The concise and
hard-hitting long-form essay is now available on the front page of our
website: http://www.stockinterview.com.


Take Your Pick: Nuclear Energy or Cheap Arctic Land

Aside from optioning to buy vast tracts of land near the Arctic Circle, as
Dr. Lovelock's conclusions force us to briefly consider, what can we do to
protect our finances? Global warming, climate change and an apocalypse soon
to dawn on the horizon are probably too much reality for the here and now.
But, what will you do ten to thirty years from now? This past week, we
interviewed Julian Steyn, author of A Brighter Tomorrow, which he co-wrote
with U.S. Senator Pete Domenici. A conservative and rational man, even he
admitted in an email, "I am afraid I do agree with his (Lovelock's)
concerns."

If one finds logic within the statistical analysis presented by the United
Nations Intergovernmental Panel on Climate Change (IPCC), a rational mind
would want to start protecting his finances today in order to ensure future
survival for his family and lineage. Esteemed scientists have picked their
way through mountains of statistics, charts and projections about what is
happening with melting glaciers, rising temperatures, higher sea levels and
so forth. They do not like what they see, they are not alone, and the better
minds are not endorsing wind farms or solar panels as "the solution." They
see nuclear fission reactors as mandatory, and the faster these go online,
the less we will later have to sweat (literally).

Eric Sprott and Kevin Bambrough have laid out a possible solution, a cogent
thesis as to why we must stop fooling around now. They didn't write the
report to alarm and cajole you to lynch the next environmentalist or
anti-nuke whom you come across. Messrs. Sprott and Bambrough provided a
blueprint of what must be done by governments and decision-makers. More
importantly, they have given us extremely provocative advice on HOW to
protect our finances during the brewing crisis.

Remember, it won't just be some meteor hitting the earth (although that
might happen, too). Global warming is tantamount to boiling water on your
stove. First, it gets warm, then warmer and warmer. Eventually, it gets hot.
Then, the water boils. In other words, the catastrophe will brew for a
while, causing political and economic instability, and a host of other ills,
probably better described in biblical terms. Most of us, unfortunately, will
wait until the next Hurricane Katrina is a few miles down the road before
waking up.

Through the first half of the report, the authors cover global warming and
climate change, in just about every way imaginable. Messrs. Sprott and
Bambrough found nooks and crannies which may alarm you. Did you know the
world's largest aquifer, the Ogallala aquifer in the United States, is
drying up because the glaciers, which created this aquifer, are receding?
Fresh water is already in short supply for one-third of the world's
population. We may be surrounded by water, but could lack a glass of fresh
water to drink. Ask the Saudis why they are building desalination plants as
fast they can. Imagine if those arid conditions prevailed across more than
90 percent of the landmass of earth.

What happens as the earth's temperature goes up? Increased urbanization,
growing GDPs and demand for all the niceties that come with "civilization"
have a price: more CO2 emissions. Deadly CO2 emissions, which raise the
earth's temperature, poison our air and kill our plants (and us), are very
likely going to turn this earth into a potboiler before the century ends.


Nuclear Expansion Needs More Uranium

"This IS the perfect storm," Kevin Bambrough warned, not as the abused
cliché the term has become, but as an angry voice demanding decision-makers
take to heart the gravity of CO2 emissions. "We need more nuclear reactors
now," he told us. He directed us to environmentalist Patrick Moore's
contention that the U.S. should reverse its energy source mix from an
80-percent dependence upon fossil fuels, relying instead upon nuclear energy
for 60-percent of our electrical power supply.

Under the former Greenpeace co-founder's scenario, Bambrough extrapolated
the World Nuclear Association (WNA) projections for 2030. Nuclear power
demand is then expected to soar from the current 368 Gw, produced by the
world's 441 nuclear reactors. He computed, using Moore's premise of a
60-percent nuclear-reliance, that nuclear reactors would produce 18,900 Twh
of the total power demand in 2030, which the WNA estimates might reach
31,500 Twh. To produce that much electricity, Bambrough calculated that by
2030, nearly 2700 nuclear reactors will be required across the planet.
Envisioning the "potential" of a 600-percent increase in nuclear reactors
online, about 25 years from now, Bambrough also calculated how much uranium
would be required to fuel those reactors.

According to Bambrough, current global uranium mining production rests at
about the 100 million-pound level. By 2030, if nuclear energy expands as
Moore insists it should, then the world's utilities will require on the
order of about 1.3 billion pounds every year. With regards to a planetary
build-up of nuclear energy, Bambrough wrote, "The supply of uranium may well
be the most limiting factor."

This may become the new case for a sustained rally in the spot uranium
price. Bambrough wrote, "Much higher uranium prices will be required to
attract enough investment capital to meet the growth in demand." This has
already begun, as uranium prices have skyrocketed for the past six years.
Long-term uranium recently traded as high as $46/pound, exponentially higher
than the spot price of $6.40/pound in late 2000. Bambrough is correct in his
conclusion. Building an underground uranium mine costs far more than it did
in the glory days of uranium in the 1950s. Environmental regulations force
miners to spend more and take longer in constructing any uranium-producing
facility, including an ISL operation.

"Marginal mines will become price setters," wrote Bambrough. This helps
explain why the Sprott Asset Management funds have invested heavily in
companies such as Strathmore Minerals (TSX: STM; Other OTC: STHJF), Energy
Metals (TSX: EMC) and others. When we first interviewed Strathmore Minerals
Chief Executive, Dev Randhawa, in June 2004, he told us his strategy was to
capitalize upon a sustained rally in the uranium price by acquiring
properties which were uneconomic at the sub-$20/level. His strategy has
rewarded shareholders and continued to do so with each uptick in the spot
uranium price. If Bambrough's conclusion is accurate, the junior uranium
developers could very well become the Internet high-fliers. That conclusion
was reached by newsletter writer James Dines, this past November, and
repeated numerous times in multiple reports by others.

"Large low-cost producers may be able to reap Middle East-like oil profits
for decades," wrote Bambrough. If the spread between production costs and
spot uranium keeps widening, the smaller uranium companies are going to hit
it big. Those companies, which postponed uranium mining, will be selling
their uranium production at the kind of profits-to-production spread
ExxonMobil or ChevronTexaco now enjoy.

Rising uranium prices are probably more of an irritation for fuel traders
than the utilities, who worry about construction costs. The actual fuel cost
to operate a nuclear power plant borders on the absurd. Bambrough wrote in
his report, "Fuel costs (for nuclear) are merely 4.5 percent of total costs,
even with uranium at $40 per lb. If uranium rises to $100 per lb (a further
150 percent increase), the cost of nuclear power would only rise by
approximately 6.75 percent." Fuel costs for coal and gas are 35 and 73
percent, respectively. And they release massive doses of CO2 into the air.

What else can be done aside from a worldwide, unanimous endorsement of
nuclear energy? There may still be difficulties ahead. Lovelock told us the
CO2 emissions problem should have been addressed 50 years ago. It takes
between 50 and 100 years for the atmosphere to cycle through those
emissions.

The Sprott report co-authors concluded there will be supply problems for
food, water and energy. They envision problems with national security,
soaring grain prices, and greater investments needed to provide water and
energy to those who aren't buried ten feet deep in their indebtedness. They
foresee a currency collapse as central banks flood the money system to
provide liquidity. And, of course, gold will resume the role it has always
held during times of overpowering economic calamity.

Is this too much reality for you? Should we just wait a while and see what
transpires? We might not be so lucky. Some experts, such as the Chief Claims
Strategist for Swiss Re, wrote in a March 2006 CERES report, "Global warming
has accelerated from a problem that might affect our grandchildren, to one
that could significantly disturb the social and economic conditions of our
lifetime."

In other words, Messrs. Sprott and Bambrough are correct in their
assumptions and conclusions. The time to get moving is today, not thirty
years from now.

For a second opinion, before completing this column, we forwarded the Sprott
report to David Miller. He wears many hats, including a consultancy to the
International Atomic Energy Agency, third-term Wyoming legislator, president
of Strathmore Minerals (TSX: STM) and a walking encyclopedia on uranium,
geology, nuclear power and politics. He responded quite bluntly, "The fuel
of the 19th century was coal. The fuel of the 20th century was oil. Both
have run their economic course. Uranium is on its way to becoming the energy
fuel of the 21st century. The crescendo of countries clamoring for nuclear
energy has been growing louder in each year of this new millennium."
Perhaps, we may yet see Moore's energy mix come to pass, or at least
dramatic growth in the nuclear sector to more closely approach his targeted
percentage level.

One key question remains unanswered, during our two-year investigation into
uranium and nuclear energy. Sure, we've gotten a lot of answers, but we
remain unconvinced. No one has satisfactorily answered this question: "Will
there be sufficient supplies of 'already mined uranium' and current mining
production available to the world's nuclear reactors to meet the anticipated
global demand for electricity?" The make-break word in the above question is
"available." Uranium is nearly everywhere. There are about 1.7 billion
pounds of 'already mined uranium' in the world's inventories. But will there
be enough uranium made available to the utilities when the time comes?

If there is not, today's spot uranium price could look comparable to
gasoline prices, circa 1965, at some future point.


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