Al­ter­na­tive en­ergy be­comes a “story”

Prices of promis­ing shares driven up sharply by in­vestors

Finweek English Edition - - Creating wealth - LU­CAS DE LANGE

RE­CENT RE­SEARCH CON­FIRMS that there are more than enough en­ergy re­sources avail­able in the world for many years to come, but it also con­firms that the price for ex­ploit­ing th­ese re­sources will be high. In other words, high oil prices are here to stay – that’s a given, and busi­ness and in­vestors must adapt ac­cord­ingly.

Sev­eral new trends are emerg­ing as a re­sult, such as hedge funds and other ma­jor mar­ket play­ers that are in­vest­ing in­creas­ingly in promis­ing com­pa­nies that will hope­fully make large prof­its from the de­vel­op­ment of so-called clean al­ter­na­tive en­ergy re­sources. Ura­nium is one of the most im­por­tant of th­ese, and its im­por­tance is proved by the in­ter­est it is cur­rently gen­er­at­ing all over the world. More than 200 ura­nium com­pa­nies have been listed on var­i­ous stock ex­changes over the past two years.

In the mid­dle of last year, a fund called Geiger Counter, which fo­cuses on ura­nium com­pa­nies, was listed on the Lon­don Stock Ex­change. The rea­son for this is, of course, the record lev­els reached by the ura­nium price over the past few years when it grew by about 1 100% to the cur­rent US$85/lb.

In­ter­na­tional bank group ABN Amro re­cently ad­justed its fore­cast for 2007 from an av­er­age US$65 to US$95/lb. This is re­garded as con­ser­va­tive, since 69 new nu­clear re­ac­tors are cur­rently un­der con­struc­tion or in the plan­ning stages.

World­wide there’s fever­ish ac­tiv­ity to in­crease ura­nium pro­duc­tion. For ex­am­ple, Amer­ica’s pro­duc­tion last year in­creased by 53% to 4,1m lbs. Yet this ac­counts for only 7% of its own re­quire­ments.

In SA there are only two listed com­pa­nies giv­ing di­rect ac­cess to the ura­nium bull mar­ket. The most im­por­tant is sxr Ura­nium One, which was one of the most ex­cit­ing shares on the JSE over the past twelve months, with an in­crease of nearly 180%. The more spec­u­la­tive Sim­mer & Jack jumped 225%. It’s in­ter­est­ing that hedge funds also in­vest in th­ese two.

How­ever, along with the pres­sure ex­erted by higher oil prices, there’s in­creas­ing con­cern about global warm­ing. Large in­dus­trial groups, which have in the past been seen as part of the prob­lem, are in­creas­ingly sup­port­ing a move away from coal and oil as en­ergy re­sources to cleaner al­ter­na­tives. In ad­di­tion to nu­clear en­ergy, other sources like hy­dro­elec­tric power, wind, sun and the move­ment of waves are be­ing looked at.

Rus­sell Pul­lan, di­rec­tor of No­mura In­ter­na­tional’s New En­ergy & Clean Ven­tures di­vi­sion, says there’s a “phe­nom­e­nal de­mand” for cleaner sources of en­ergy. This is also re­flected in sharp in­creases in the share prices of com­pa­nies that pro­mote a cleaner en­vi­ron­ment. For ex­am­ple, in Lon­don the price of Re­neSola, a Chi­nese group, dou­bled in three months. It re­cy­cles sil­i­con. That this kind of com­pany has be­come highly fash­ion­able is also shown by the fact that al­ter­na­tive en­ergy shares are cur­rently trad­ing at price: earn­ings ra­tios of 20-40 times on the large mar­kets. This com­pares with around 10 for a large Euro­pean oil com­pany.

UN En­vi­ron­men­tal Pro­gramme head Achim Steiner points out that the po­lit­i­cal will of the large in­dus­tri­alised coun­tries is now much more in favour of de­vel­op­ing al­ter­na­tive en­ergy re­sources. Ger­many and Ja­pan are al­ready sub­si­dis­ing de­vel­op­ment work, and in­di­ca­tions are that their ex­am­ple will in­creas­ingly be fol­lowed else­where, in­clud­ing in the emerg­ing economies, such as SA.

For the first time, it’s also a real po­lit­i­cal fac­tor in the US pres­i­den­tial elec­tions, with a pos­si­ble Demo­cratic can­di­date, Al Gore, who last week won an Os­car for his film on global warm­ing. The US is the main cul­prit emit­ting toxic gases into the at­mos­phere.

How­ever, the ex­pected sus­tained high oil prices, as well as the in­sta­bil­ity of sev­eral large oil ex­porters, also have other im­por­tant long-term con­se­quences. The Euro­pean Cen­tral Bank points out that high oil prices are the main rea­son it could not reach its in­fla­tion tar­gets for the sev­enth con­sec­u­tive year last year. Its tar­get is just un­der 2%.

Last year’s fig­ure was 2,2%. About 2% is be­ing fore­cast for this year, pro­vided oil prices re­main rel­a­tively stable at the cur­rent lev­els. For in­vestors, the swing to cleaner en­ergy re­sources is quite a “story” that could pro­duce ex­cep­tional prof­its in the fu­ture. SA plays a very small role in this, and lo­cal in­vestors will have to look to the over­seas mar­ket to catch a ride on this wave, prob­a­bly by way of spe­cialised unit trusts. Large mu­tual fund man­agers like Fi­delity (www. fi­delity.com) and Van­guard (www.van­guard. com) of­fer en­ergy funds, while al­ter­na­tive en­ergy funds are avail­able at www.ga­funds. com and www.newal­ter­na­tives­fund.com.

WORLD'S OIL RE­SERVES… MID­DLE EAST DOM­I­NATES*

Source: World En­ergy Mag­a­zine

COUN­TRIES WITH BIG­GEST PO­TEN­TIAL RE­SERVES

Source: World En­ergy Mag­a­zine

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