Thorium as an alternative fuel for nuclear power generation...and Throrium Power as an investment opportunity..... some background

This note is a more detailed analysis of the potential of Thorium Power as a stock investment. Its stock's is $.27 on May 27th, 2008.

Thorium is an element and it is an alternative to uranium as a fuel in nuclear reactors that generate electricity.

Thorium is attractive as an alternative to uranium because it is more widely available, is more efficient, and perhaps most important is proliferation resistant. (see the analysis by the International Atomic Energy Agency (IAEA..Mohammed ElBaradai is its head but previously its head was Hans Blix) below for a detailed discussion.

A Thorium fuel cycle as an alternative to uranium is well understood in the international nuclear power industry. Since the 1970s several reactors in several countries have tested thorium fuels.

But the ready availability of uranium in the early development of the industry and the slow development of severe opposition to additional nuclear power plants damped expenditures on the continued R&D necessary to bring Thorium fuel cycle reactors to the point of acceptance and installation as an attractive alternative to uranium.

But global warming and the desire to eliminate carbon based fuels. the advent of electric vehicles, plus the even more recent rise in the price of oil has revived interest in nuclear power as a no-green house gas solution to electric power generation.

But uranium fuel cycle nuclear plants also facilitates weapons development...e.g. Iran and North Korea

Interest in thorium fuel cycles is revived therefore because of the many advantages among these are:

1. Thorium is more widely available than uranium

2. Thorium fuel cycles are more proliferation resistant.

However the nuclear industry is reluctant to install new technology because of the fear of catastrophic failure and the release of radiation...such as Chernobyl.

Thorium fuel technology requires future R&D development and governments and industry are reluctant to invest.

Thorium Power has several assets it can exploit if nuclear power generation once again becomes a viable alternative fuel cycle:

1. Leases on property in Alabama that contains Thorium ore...US has estimated 18% of thorium ore.

2. A patented thorium-based fuel design that is undergoing testing by a Russian Institute and will be incorporated into a full scale nuclear reactor eventually.

3. Expertise in nuclear fuels design and in nuclear power generation and regulation in general...see Hans Blix involvement with Thorium Power Inc.

The value of Thorium Power stock will depend upon is ability to 'monetize' these assets.

To date the only monetization is through consulting contracts with United Arab Emirates.

Thorium Power has 300M shares ourtstanding. To warrant a stock price of $1 (the current price as of May 29th is $.27) the company must earn $15M/year, if the price earnings ratio is, for example, at 20 (hot stocks with great earnings potential may have price earnings ratios of 40. Google's PE Ratio is about 40 now).

If its net earnings are 30% of revenue (high), it needs to have revenues of $50M to warrant a stock price of $1 at a PE ratio of 20.

Its current revenues are only $3.5M...estimated to become perhaps $10m for 2008... and are solely from consulting services. It has no net earnings.

It is unlikely that sales of ore from its property holdings or consulting services will generate an adequate revenue stream to warrant a large increase in its stock price or its Price/earnings ratio.

Therefore its upside potential for stock price increase depends upon licensing fees from its intellectual property in Thorium fuel design.

Since thorium fuel cycles have been tested by several countries, I am uncertain at the moment how extensive the Thorium Power patents are.

In other words, if thorium fuel cycle reactors are built in the future (requiring large investments in design and testing in order to get licenses etc) what would Thorium Power's revenue flow from its IP be?

It patents are in the are of fuel design..not plant design or other aspects. Thorium does not design plants, mine ore, or operate plants.

It designs thorium fuel...and its only source of income would be royalty payments from Nuclear plant owners that use Thorium Power's fuel design.

Are there competing designs for fuel? My guess is either no or not many, but I don't know.

Of course another prospect is that a large company that builds nuclear power plants such as Bechtel or is involved deeply such as GE would buy Thorium Power...even at $1/share the purchase would be $300M.

I will continue to try to obtain more information about barriers to Thorium use and the depth of patent protection that Thorium Power has for thorium fuel designs. If its design is a leading or only one..then that would make a huge difference.

Mu guess is theta nuclear power will will regain favor..I see no reason why thorium would not be employed as an alternate fuel since it reduces chances of proliferation.

But there remains many ifs.

Additional information:

Excellent discussion by IAEA in 2000 of thorium potential: http://www.iaea.or.at/inis/aws/fnss/fulltext/31030535.pdf

A potential major user of thorium fuel cycle nuclear plants is India. It has large deposits of thorium and little uranium.

If through the USA 123 relationship, India gains access to uranium supplies, its interest in thorium fuel cycle plants may be significantly reduced.