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Monday, March 14, 2011

Uranium miners in meltdown as Japan scrambles to avert nuclear disaster

HAVE Japan's nuclear safeguards worked as well as could be expected under unprecedented circumstances, or do the reported near or partial meltdowns at two reactors demonstrate - once and for all - that atomic power is inherently unsafe?
If using seawater to cool the plants was in the manual, it was written by Homer Simpson.
Investors this morning took their own safeguards and sharply sold off uranium shares across the board. By late morning, pure-play producers Energy Resources Australia (ERA, $8.44) and Paladin Energy (PDN, $4.12) had lost 10 per cent and 13 per cent respectively, while African developer dazzler Extract Resources (EXT, $9.67) was down 9 per cent.

The fear is that the sector will face the same prolonged nuclear winter it endured after the 1986 Chernobyl disaster, which sent plumes of radioactive steam across Europe.
For the 99.99 per cent of the population who aren't nuclear physicists, it will be hard to sort the facts from the hysteria.
Thanks to Jane Fonda, there'll be lots of ill-informed talk about the China Syndrome - in which the reactor core supposedly melts into the earth and keeps going - while the pro-nuclear brigade will try to convince us that it's all hunky-dory because modern reactors are a lot safer (which raises the question: How many more are ancient facilities like the Fukushima reactors?).
The insurers were more stoic, with IAG (IAG, $3.38) and Suncorp Metway (SUN, $8.05) shares losing 2.5 per cent and 1.7 per cent respectively.
The globally-oriented QBE Insurance (QBE, $16.94) was always going to be of the most interest, but the stock lost a mere 1.3 per cent after the company reassured the market its losses were limited by reinsurance to $US125m.
Another casualty was Astro Japan Property (AJA, $3.08) which has a $1.7 billion portfolio of 43 properties, mainly in the Tokyo area.
The Galileo Japan Trust (GJT, $1.25) has 26 properties worth $865m and reports its portfolio “retains a bias to Tokyo”.

Astro shares slumped 5 per cent, despite the company reporting a “minimal degree of physical damage” based on initial observations.
In the case of the miners it's a toss-up between the negative effect of port disruptions and the shut-down of Japan's car industry against eventual surging demand for iron ore and coking coal because of the rebuilding efforts.
As Brian Eley at Eley Griffiths points out, natural disasters tend to be quickly overlooked by markets and, if anything, are stimulatory.

Even so, BHP Billiton (BHP, $43.39) and Rio Tinto (RIO, $77.72) lost 1.8 per cent and 1.3 per cent, but if it's hard to know the degree to which the movements are Japan-related.
There's some talk that local thermal coal producers (which include BHP and Rio) will benefit if Japan's nuclear power industry - which provides 30 per cent of the nation's electricity - is permanently curtailed.
But just as you can't instantly shut down a nuclear plant, you can't build a new coal-fired power station overnight.

In Criterion's view, investors will overlook the disaster - no matter how horrific - because that's historically how markets behave. As Eley notes, there's a difference between a financial disaster and a natural disaster.
The uranium angle is the real wildcard.
Foster Stockbroking this morning urged clients to sell their uranium holdings and buy Caltex (CTX, $15.21) shares, the idea being that the stock will benefit from Japan's damaged oil refining capacity (indeed, Caltex shares were 40c, or 2.5 per cent firmer).

“India, which planned to spend $US175bn (on nuclear reactors) by 2030 has indicated that this event may be downbeat for the program and they will revisit their reactor plans,” the firm says.
“Until the true extent of damage is known it will be difficult to judge the outcome.”

Too true: Things will either blow over for the sector - or blow up.

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