Japan’s Fukushima disaster caused a public backlash and the call for the removal of nuclear power. Japan’s previous plans to increase nuclear power to meet half of the country’s needs have been scrapped. The lost growth is a negative for the nuclear industry, but Japan is trying to export its nuclear technology to Saudi Arabia. The developing Saudi-Japanese partnership will help to ensure a steady supply of oil for Japan and support uranium demand.
Oil isn’t called black gold without reason. Saudi Arabia has a huge supply of cheap, conventional oil that supports the royal family and the state. The nation does have its challenges. Building an empire in the middle of a desert requires large amounts of fresh water and air conditioners. A large portion of Saudi Arabia’s water comes from energy intensive desalinization plants.
More than half of Saudi Arabia’s electricity is generated from oil. This comes at a huge opportunity cost for the nation. If it could generate its electricity from a cheaper energy source like uranium, then it could sell more oil on the open market.
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Which Uranium Miners Will Benefit?
Cameco Corporation (USA) (NYSE:CCJ) is one of the strongest pure-play uranium miners. It is active in Canada, Australia, Mongolia, and the U.S. Canada is trying to diversify itself from being too dependent on the U.S. To help achieve this goal, the Canadian government has been courting major Asian powers and this has helped Cameco Corporation (USA) (NYSE:CCJ) to make big sales in China.
With experience in exporting uranium overseas and the Kintyre mine in Western Australia, Cameco Corporation (USA) (NYSE:CCJ) is in a great position to eventually supply Saudi nuclear power plants. Japan’s decision to continue using nuclear power also benefits Cameco Corporation (USA) (NYSE:CCJ) as the company supplies UO2 for their light water reactors.
Cameco Corporation (USA) (NYSE:CCJ) is in a great position to grow. It has little debt with a total debt to equity ratio of just 0.31. Its return on investments of 4.2% could be higher, but it is positive considering the negative effects of Fukushima on the industry. The firm’s profit margin of 11.4% gives a margin of safety and makes Cameco Corporation (USA) (NYSE:CCJ) a strong investment.
How Will Japan Benefit?
Japanese manufactures like Toyota Motor Corporation (NYSE:TM) will benefit from a steady supply of oil. Even though sales of electrically powered cars continue to grow, the majority of vehicles use gasoline or diesel fuel. In the first quarter of 2013, just 20% of Toyota Motor Corporation (NYSE:TM)’s European sales were hybrids. If Japan successfully exports their nuclear knowledge, then Saudi Arabia’s crude oil export capacity will increase because of a decrease in domestic Saudi use. This will help to keep gasoline prices low and ensure that people continue to drive and buy cars.
As an investment Toyota Motor Corporation (NYSE:TM) is a mixed bag. Its total debt to equity ratio of 1.15 is slightly higher than Honda’s. Even though its return on investments of 4.7% and profit margin of 3.8% are higher than Honda’s, Toyota Motor Corporation (NYSE:TM) is it not perfect. It has dealt with a number of damaging recalls. Other investors have called attention to the lack of independent oversight at the board level.
Exporting of Japan’s nuclear technology and increasing oil imports will support the entire nation. Japanese ETFs like iShares MSCI Japan Index are another possible way to play the trend.
0.81% of iShares MSCI Japan’s holdings are in Mitsubishi Heavy Industries. The company’s nuclear division designs nuclear power plants and could be one of the companies to export nuclear technology directly to Saudi Arabia.
Overall the ETF is a good way to buy a piece of long term Japanese growth. Japan continues to devalue the Yen and this is good for individual exporters like Honda and Toyota Motor Corporation (NYSE:TM). These companies are held by the fund. With a net expense ratio of 0.51% and an average price to earnings ratio of 21.5 the fund is not outrageously expensive, though it is more expensive than many U.S. large caps.
Conclusion
Japan’s plan to export nuclear technology to Saudi Arabia in order to ensure more crude oil is a win-win situation. Saudi Arabia will make more money by exporting more of its crude oil and Japan will have a securer supply of crude oil. Uranium miners like Cameco will also benefit from the increased demand for uranium.
Cameco is the best investment with its low debt load, profitable mines and history of overseas sales to Japan. Toyota Motor Corporation (NYSE:TM) and the iShares MSCI Japan ETF have a number of ancillary aspects like the potential for the Bank of Japan to cause a currency war that decrease their attractiveness.
The article Japan’s Nuclear Exports Are Bullish for Miners and Japan originally appeared on Fool.com and is written by Joshua Bondy.
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