65 Nuclear Reactions Under Construction Each Requiring 1.5 Million Lbs Of Uranium At Startup; Cemeco (CCJ) Already Looking To Double Production From Now Until 2018

Wall Street Transcript

67 WALL STREET, New York - October 24, 2011 - The Wall Street Transcript has just published its Industrial Equipment Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online. Topics covered: Performance Correlation with Macroeconomic Data - Uneven Growth Across End Markets - Industrial Restructuring - Commercial Aviation and Energy Expenditures Companies include: ABB (ABB); Airbus (EAD.PA); American Airlines (AMR); Anixter (AXE); Berkshire (BRK-A); Boeing (BA); and many more. In the following brief excerpt from the Industrial Equipment Special Report,, expert analysts discuss the outlook for the sector and for investors. Ben Elias, CFA, is an Analyst with the global industrial infrastructure research team at Sterne Agee & Leach, Inc. Before joining Sterne Agee, he was a Vice President at Prudential Equity Group LLC. Previously, he was an Analyst in the alternative investment group at UBS. Mr. Elias received his B.A. in political science and philosophy, and his master's degree in public policy from the University of Rochester. TWST: What about commercial aviation? What's going on there? Mr. Elias: Commercial aviation's benefiting from the next-generation planes with Boeing (BA) and Airbus (EAD.PA) taking up line rates on current models just to get to the NEOs and the MAX, as well as the huge replacement cycle for engines and components. They will be struggling to keep up with demand for the current generation of 320s and 737s. Airbus received almost 700-plus orders for the 320NEO at the Paris Air Show and that's going to keep them busy until well past 2017, 2018. So the next generation of re-engining of your current narrow-body single-aisle planes has forced Boeing to look at their 737 and re-engine that as well to look for more fuel economy from the engines. Airlines and leasing companies are looking at the available 10% to 12% reduction in operating costs and lining up to order new planes. So with the re-engining, you do feel you will get that without really having to redesign a new plane. Perhaps it was Bombardier's (BBD-A.TO) CSeries with the geared turbofan that got the ball moving at Airbus to re-engine their A320 to compete with the 15% to 17% reduction in operating costs that the CSeries offered. The re-engining is a big catalyst that gets you from the current cycle to the next. Additionally, there's a lot of pent-up value in the 787 now that deliveries have begun. Once those deliveries start happening, you're going to see a huge build of inventory and spare parts for some of the suppliers for components and systems like avionics, communications and hydraulic - companies like Eaton (ETN) and United Technologies (UTX), who are in the process of acquiring Goodrich (GR) for their commercial aviation exposure. But the other thing is if you look at a company like GE (GE), their engine installed base has nearly doubled in the last eight to 10 years with 40% of that installed base needing their first FAA-mandated overhaul, so for a $7 million engine, you're looking at $1 million in an after-market service opportunity. TWST: What about nuclear? Mr. Elias: There was a lot of hope with the nuclear renaissance. I think people mistakenly looked at the U.S. just because it's in our backyard. After the events in Japan, I don't think people would want to come back to it. I think nuclear presents an opportunity. What we've seen after the selloff and negative sentiment around it is that none of the companies investing in nuclear have backed away. In fact, some of them have got even more aggressive. Before March 15, we had 65 reactors under construction globally, and I think that number has gone up slightly. We've actually seen China and India revise their target for nuclear-generated electricity. They've revised that up over the next 2020 and 2030 time frame given what has happened and the nervousness around the nuclear industry, with Germany accelerating the shutdown of their nuclear-generating assets, which could possibly be reversed now that Merkel seems to be looking for a new job. In the last 10 years we haven't seen a lot of investment in uranium mining or in conversion or fuel-fabrication infrastructure. So for the last 10 years we've had demand that has exceeded production. We've had secondary resources of supply, one of which will dry up after 2013. The current crisis and weak spot price has caused a lot of the junior miners to throw in the towel and halt all new development. So we're seeing no new projects for additional sources of uranium out there. And I think when we get to 2020 and beyond, the supply/demand balance will get even more acute - companies like Cameco (CCJ), who have a detailed strategy to double production between now and 2018 and are now actually looking at their needs beyond 2018. When you look at the 65 reactors under construction, you have keep in mind that you're going to have to build inventory. You need 1.5 million pounds of uranium at startup to get the reactor going, and you need 500,000 pounds to refuel every year. Typically, utilities like to hold three to four years of inventories. So China, India, Russia and Korea will need to start stockpiling inventories. I think the big selloff for a lot of the uranium names is well past anything that makes any rational sense, and I do think China and India and a lot of the new build countries will start looking at security of supply, now that they're investing so much in their nuclear assets. They want to make sure they have fuel. So I do think nuclear is very interesting right now, especially a company like Cameco that really improved operations and is sitting on two of the highest ore grade mines out there and has the lowest cost of production. The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online . The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations. 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