It’s Easier Than You Think to Cripple America

by Sean Brodrick
Electric power substation

A Note From the Editorial Director: Sean's column today is scary. Some might think we're being alarmist. But if anything, Sean's warnings about America's security vulnerabilities understate the threats we face. Our Chief Investment Strategist Alexander Green is also worried about the situation. Like Sean, Alex is thinking of ways you can profit, and he'll unveil his latest recommendation next week to readers of The Oxford Communiqué. It's a must-own company for investors who understand the world we face.

For more information about our flagship newsletter, click here.

- Andrew Snyder

Imagine a world without electricity. Not just for a few days in a limited area, like after a storm. I'm talking about every American across the country unable to conduct ordinary business, heat their homes, access money or keep food fresh - for weeks or even months.

And now imagine this scenario caused not by an act of God, but by terrorists.

It could happen. The Federal Energy Regulatory Commission (FERC) says that terrorists could shut down the U.S. power grid for more than a month by sabotaging just nine of the more than 55,000 electric substations spread across the nation.

Beyond that, there are another 30 crucial facilities that use large transformers to boost voltage over long distances. Most are protected by no more than a chain-link fence. Maybe a security guard if we're lucky. Taking them out could cripple us.

This is just some of what would happen:

  • Water would no longer pump into most homes.
  • Food in our homes and supermarkets would spoil.
  • Your computer would not work. Goodbye, Internet.
  • Your phone wouldn't work. You couldn't call 911.
  • ATM machines would shut down.
  • Debit cards and credit cards wouldn't work.
  • No TV. No radio.
  • Gas pumps would stop.

Good thing no one wants to take out our grid, eh?

Well, hold on to your hat. A year ago, snipers opened fire on transformers at a PG&E Corp. power station, near San Jose, Calif.

The snipers knocked out 17 of the big transformers, causing millions of dollars in damage. The attack plunged the region into a blackout. It took utility workers 27 days to make repairs.

The attack was called "the most significant incident of domestic terrorism involving the grid that has ever occurred" by the chairman of FERC.

Who did it? We'll probably never know. The gunmen were never caught. It's as if someone was testing the defenses of America's power grid.

And no wonder. A whopping 99% of Department of Defense installations in the U.S. rely on grid power.

Easier Than You Think

But you don't need a rifle to take down America's power grid. A cyberterrorist with a laptop computer can gain access and wreak havoc in a power system across a region.

Cyberhackers can penetrate America's power transmission systems with "startling" ease, according to recent tests. The Department of Homeland Security is worried. It sent alerts to power grid operators, telling them to upgrade their software.

But after each upgrade, hackers find new vulnerabilities.

Did you know that companies hire professional hackers to test corporate computers for security? One such hacker said it takes just two to four hours to gain admin-level access to a power grid.

And you've probably heard of so-called smart grid technology. In a smart grid, information between the user and the power company goes both ways.

That's opened a fresh array of security risks.

Overseas, it's worse. Terrorist organizations were linked to 2,500 attacks on transmission lines or towers and at least 500 on substations from 1996 to 2006. Israel Electric, the country's main power company, sees about 12,000 hack attacks each year.

20th-Century Technology Under 21st-Century Attack

The U.S. electric grid is the greatest engineering achievement of the 20th century.

But it is showing its age - the average power plant is 30 years old. And it's overloaded - we keep buying more electronic gadgets. The system is buckling under the strain even on the best of days.

This is why the U.S. is called "a superpower with a third world electric grid."

And it's going to get worse. Electrical demand is growing 25% per year faster than we're building power lines. Demand is expected to double over the next 20 years.

The makers of replacement parts for some of these systems are out of business. So getting new parts can be a problem. For example, those big transformers that were knocked out near San Jose? There are only seven U.S. manufacturers for those. Each company can make only about 10 per month.

Washington Inaction

Congress has taken action on the matter - but only to criticize journalists who publish articles about how vulnerable the power grid is.

I'm not kidding. Boy, I wish I were.

For example, take Sen. Mary Landrieu (D-La.) and Sen. Lisa Murkowski (R-Alaska)... please. They're the chair and top Republican, respectively, on the Senate Energy and Natural Resources Committee. Recently, they urged the Energy Department to investigate the publication of a new energy report. The report warns that a coordinated attack on the power grid could cause massive blackouts.

"It is no stretch of the imagination to think that such attacks could entail costs of hundreds of billions of dollars," the report says.

Sens. Landrieu and Murkowski went on the warpath. But not about power grid weak points. They wanted the Energy Department to find out the source of the leak!

What You Should Do

In addition to the steps you should take to prepare for an emergency - plenty of fresh water and batteries, etc. - there are also a few ways to profit from this situation.

Invest in companies that build and repair the nation's electrical grid. Last year, the American Society of Civil Engineers (ASCE) gave the nation's electrical grid a rating of "D+." It described the power grid as a patchwork system. The grid will break down unless $673 billion is invested in it by 2020, the ASCE says.

About 17,000 miles of new high-voltage transmission lines are planned over the next five years. That's a start. But much more is needed.

After all, America isn't the only country with grid problems.

  • Canada needs to spend $15 billion a year upgrading its grid.
  • Europe is spending $192 billion on its power grid through 2020.
  • The State Grid Corp. of China says it plans to boost investment in power grid construction by nearly 20%.

In fact, no matter where you go in the world, people are using more power than ever. That requires bigger, newer grid infrastructure.

Invest in cybersecurity companies. The bigger the threat, the more money the government will throw at it. Last month, the Pentagon announced it will triple its cybersecurity staff and spend $23 billion battling cybersecurity threats through 2018.

In the private sector, companies are expected to spend $67 billion on information security this year alone. That's according to tech research firm Gartner. And that's a lot of revenue for select companies.

The cybersecurity problem is only going to get bigger. America's enemies only seem to get more vicious. And our power grid will remain vulnerable for years to come.

This is a big, long-term trend. I recommend you make the most of it.

Good investing,


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This Company Is Practically Glowing

Sean's new monthly newsletter, Oxford Resource Explorer[{emailaddress}], is off to a hot start. Sean and his co-editor David Fessler are in the money with seven out of eight picks, including Cameco (NYSE: CCJ), a uranium miner likely to benefit from rising prices and a political climate that's becoming less hostile to nuclear energy.

And surely, a nuclear-energy plant has more security than a chain-link fence and a sleepy security guard. Wouldn't it?

Here's some of what Sean told subscribers about Cameco in February:

"I'm not going to try and predict the future price of uranium. But the trends seem to favor well-positioned uranium miners. That's why I'm recommending the best uranium miner in the business. It's a company that might be able to fill the gap between supply and rising demand.

"Cameco has a market cap of $8.2 billion. It is the world's largest publicly traded uranium miner, with 465 million pounds in proven and probable reserves, 244 million pounds in measured and indicated resources, and millions of pounds more in inferred resources.

  • Cameco is a 70% partner in the biggest uranium mine in the world, McArthur River in Saskatchewan, Canada. It has licensed capacity of 18.7 million pounds annually of U308. Cameco's share of that was 13.6 million pounds in 2012.
  • Cameco has another mine in Saskatchewan, Rabbit Lake, which is the longest-running uranium production facility in North America. It currently produces about 11 million pounds of U3O8 per year.
  • Cameco owns 60% of a joint-venture mine in Kazakhstan, Inkai. Cameco's share of production is 2.6 million pounds per year, but Cameco hopes to raise that production to 5.2 million pounds a year.
  • And Cameco has operations in the U.S. at Smith Ranch-Highland and Crow Butte. Together, they produce 1.9 million pounds per year.
  • Finally, Cameco is on track to begin ore production at its newest mine, 50%-owned Cigar Lake, during the first quarter of 2014. This was pushed back from a previous target of the fourth quarter. In fact, Cigar Lake is an oft-delayed project, but it looks like Cameco is finally succeeding.

"Why this is important: Cigar Lake is one of the highest-grade uranium deposits in the world. It has grades 100 times the world average. In full production, it should produce 18 million pounds of U308 per year.

"Add it all up, and Cameco plans to increase its production by more than 60% in the next five years.

"More good news...

  • Cameco is profitable and analysts expect it to earn about $1.10 per share in 2014.
  • It has a strong balance sheet with about $278 million in cash and a debt-to-equity ratio of 0.27
  • Cameco pays a dividend of $0.39 per share, for a yield just under 2%. CCJ's dividend has grown 38% over the past three years, and is expected to keep growing.
  • In the most recent quarter, revenues rose 101% over the previous quarter. Earnings went up 163% at the same time.

"Cameco's earnings are expected [by analysts] to go down in 2014 from 2013. But a rising uranium price is likely to change that."

- Bob Keaveney with Sean Brodrick

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