Japan sees reactors in future, uranium investors rejoice

It didn’t come as a total surprise, but the Japanese government’s pronouncement that nuclear reactors will be part of its future offered uranium miners and investors alike the shot in the arm that has been so long overdue.

The good news for those in the business of making yellowcake came out of the second draft of country’s new “Basic Energy Plan,” which was released on Feb. 24, and points the way forward for its energy production over the next two decades.

The draft calls nuclear power “an important baseload electricity source” — language that shows Prime Minister Shinzo Abe is intent on following through on his campaign promise a year ago to get the country’s nuclear reactors up and running again.

All of Japan’s reactors were closed after the Fukushima meltdowns three years ago.

In the wake of the disaster then-prime minister Naoto Kan launched the “escape from nuclear” declaration, which sought to permanently close all of Japan’s nuclear power plants by 2040.

But the plan didn’t have an engine, as Kan’s own cabinet gave it lukewarm support, and once Abe’s government took power, they simply acted as if the declaration was never made.

The new “basic plan” should be approved by the end of March, and leaves open the possibility of building new reactors — an idea that was unthinkable just a few years ago.

But first the government will restart the reactors it idled for safety reviews. As many as seven Japanese utility companies are looking to restart 16 out of 50 nuclear power reactors taken offline after the Fukushima disaster.

And if the draft wasn’t enough to lift uranium investor confidence, there is also the recent defeat of two anti-nuclear candidates that had campaigned against resumed construction of a nuclear plant in the town of Kaminoseki. The winning governor is part of Abe’s Liberal Democratic Party.

Scotiabank’s specialty commodities analyst Ben Isaacson says such local elections are a good bellwether of public sentiment in the country, as they serve as proxy votes on nuclear energy itself.

If the reactors are restarted, Isaacson says the market will view it as a big step in the right direction for demand recovery, as well as for eliminating excess Japanese inventory over time.

He expects 10 Japanese reactors to restart by mid-2015.

Such an uptick in demand would dovetail nicely with the recent crimping of supply, which improves the commodity’s price. Paladin Energy (TSX: PDN) recently announced the shutdown of its Kayelekera Mine in Malawi and Cameco (TSX: CCO; NYSE: CCJ) has cut back on its production targets — both of which should cut into the supply overhang.

The positive news was reflected in an uptick in Uranium Participation (TSX: U), an exchange-traded fund that tracks the uranium price, as it was up 3%, or 16¢ to $5.75 on Feb. 25.

The spot price for U₃O₈ as of Feb. 24 was US$35.50 per lb.

But lest investors get enthusiastic about the news out of Japan, it should be noted that some in the government, including the industry minister, Toshimitsu Motegi, nodded to nuclear opposition in the country by saying that the country was looking to reduce its reliance on nuclear power as much as possible.

This is vague, but perhaps intentionally so. Not being able to pin down specifics will make it harder for activists to fight the plan, and in that same vein, the government released no hard numbers that would shed light on exactly how much of a part nuclear energy will play in its future energy mix.

Nuclear energy accounted for 30% of the country’s power before the disaster in March 2011.