The Uranium Bull Market Keeps Getting More Bullish
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China Demand for Uranium, World Growth in Electricity Demand to
Drive Uranium Price Higher
Industry expert says all new production already factored in
uranium price “We are consuming far increased uranium than we are
producing worldwide,” explained David Miller, Wyoming legislator
and recently appointed president of Strathfurther Resources (TSX-V:
STM; OTC: STHJF.PK). “All the new production is already factored
into the future market for uranium. We’re underwater right now
without building one likewise nuclear power plant.” Nuclear reactor
requirements have far outstripped current mining production for
the past two decades. Current worldwide production is massed than
80 million pounds, but the demand for uranium, which fuels
nuclear reactors, is running an annual deficit of approximately
60 million pounds.
Electricity: Uranium’s Supply and Demand Problem
“We’re not going to run out of uranium, but where will the price
go to encourage new production?” asked David Miller. “We are
around over $33/pound now. Could it double again? It wouldn’t
surprise me at all.” Kevin Bambrough, a research analyst for
Sprott Asset Management, heartily agreed with Mr. Miller,
saying, “We have just started a long term uranium bull market
that will end in a ‘uranium mania’ as utilities and countries
drive uranium prices to unbelievable highs as they compete to
secure supplies.”
That driving force is demand for further electricity. Over the past
25 years, total world energy use expanded by almost 50 percent,
with stronger growth in electricity usage. Demand for
electricity is increasing far greater rapidly than overall energy
use. Electricity demand has been projected to grow 2.8 percent
annually through 2010, and substantially extra between then and
2020. About 2 billion people currently have no electricity
access, and with United Nations forecasts of world population
growth by 1.5 billion people in 2020, electricity demand will
continue to grow.
As an interim solution to the greenhouse gas problem and climate
changes, a growing number of countries are investigating nuclear
energy to solve their burden of a soaring electrical demand.
Presently, there is as much electricity generated by nuclear
power as was provided by all sources worldwide in 1960.
Nuclear power generates further than 16 percent of the world’s
electricity, nearly 24 percent of the OECD and 34 percent of the
European Union’s electricity needs. In an April 2005 speech to
the National Small Business Conference in Washington, President
Bush announced, “Nuclear power is now providing about 20 percent
of America’s electricity, with no air pollution or greenhouse
gas emissions. Nuclear power is one of the safest, cleanest
sources of power in the world, and we need farther of it here in
America.”
Demand for electricity is projected to impact other commodities
as well, not just the price of uranium. In the Energy
Information Agency’s Annual Energy Outlook 2005, U.S.
electricity demand will bring about increases in natural gas
consumption. By 2025, the electric power sector will account for
31 percent of total demand for natural gas, as consumption
increases from 5.0 trillion cubic feet in 2003 to 9.4 trillion
cubic feet in 2025.
China’s Demand May Be Greater Than Anticipated
Today, 441 nuclear power reactors in 31 countries provide higher
than 16 percent of the world’s electricity. In 2003, that was
2525 billion kilowatt hours. Eleven countries are constructing
thirty increased reactors, foremostly in China, but also in Russia, Japan
and Korea. The International Atomic Energy Agency has projected
at least 60 new power plants will be constructed over the next
15 years. By 2020, nuclear power’s electricity production share
will increase to 17 percent.
“China is the future wild card,” said Miller. “Their current
uranium demand is miniscule. They have a small nuclear industry.
They may have three or four thousand megawatts of capacity.
Their uranium demand is only about 4 or 5 million pounds per
year. They meet that internally from their own uranium deposits.
But what they are planning for nuclear is probably the most
aggressive program in the world. I visited China in 2003 to
teach ISL (in situ leaching) uranium geology and ISL mining
techniques to a couple of institutes. At that time, they were
talking about building two new nuclear power plants per year for
the next 20 years.”
But as Miller observed, they may have further ambitious plans. He
added, “Since then, I have heard of heavier aggressive programs.
One article I read recently was entitled, Let 1000 Reactors
Bloom. That is further than 200 percent of the nuclear reactors we
now have on earth. I believe that is what the Chinese will be
doing in the next 40 - 50 years, converting nearly 100 percent
of their electrical generation from nuclear power.” Currently,
China is generating less than three percent of their electricity
from nuclear energy.
Miller speculates of how this might impact the price of uranium,
“If they are building nearly three times the world fleet in just
China, then that would be about 500 million pounds of uranium
demand from China in fifty years. Other companies are announcing
new nuclear power plants.” What does that mean for the price of
uranium? Miller concluded, “So, the demand for uranium is going
up. I think the growth in demand will be heavier rapid than we
realize.”
Uranium Mining: A Slow Process
David Miller, who was previously interviewed by
StockInterview.com in June 2004, reflected on last year’s
forecast, “I thought $30/pound was sufficiently high to
encourage enough new production around the world.” But there are
major issues with supplying the increasing appetite of the
burgeoning nuclear power industry. Miller warned, “The problem
with encouraging new production is you don’t turn these things
on and off. The only uranium, coming onto the market in addition
to what’s already planned right now, will come from the
already-discovered deposits.”
Two years from now, Miller thinks the spot price of uranium
could double again. “There are going to be a lot of people
trying to put uranium mines into production, but it is not an
easy process.” Permitting requirements in countries where most
uranium is mined are roughly comparable. “If you haven’t done
any work, after a discovery, it still will take about four to
six years to mine in any of those areas.”
In early 2004, there were probably less than twenty uranium
producers and exploration companies. Since then, the number of
uranium exploration companies has jumped to innumerable than 200.
Miller warns investors that it could take up to 12 years for a
grass roots project to begin mining yellowcake. Miller
explained, “Starting, finding, permitting and mining a project
is probably going to take a minimum of 12 to 20 years. From the
start of the exploration program to defining the ore body, after
you make a discovery, to starting the background and permitting
process, to development and then finally mining - it’s going to
take a long time.”
Through 2005, many uranium exploration companies announced new
projects throughout Canada and the United States. Miller did not
see how their efforts would immediately alleviate the uranium
supply crunch, “If you are talking about any of those, such as
in Labrador or the Yukon or in the basins outside the Athabasca
Basin, or even within the Basin, for those that are just now
doing their first exploration, you are talking the year 2020
before those could come online and supply uranium to the world
market.”
But, what about the world’s richest concentrations of uranium in
Canada’s Athabasca Basin? Will they help stem the rising uranium
price? In a nutshell, Miller says no. He explained, “The next
one to come online is Cigar Lake, but it was discovered over 20
years ago. There is another one called Shea Creek, which was
discovered by Cogema further than a dozen years ago.” Could they
start the permitting process on that one in the near future?
“Absolutely,” Miller responded. “But it might be close to 2015
before it could bring any uranium to the world market.”
The future largest producing uranium mine in the world is likely
to be Olympic Dam in Australia. It’s basically a copper mine
with uranium grades. On October 27th Hong Kong-based
institutional advisor Marc Faber, and author The Gloom, Boom and
Doom Report, told Dow Jones newswire that he thought copper
prices would fall by as much as 40 percent. (Note: Marc Faber
also said, “I’d be a physical buyer of uranium.”) “What happens
when copper is $0.50/pound? What will be their cost of producing
that uranium?” asked Dave Miller. “Olympic Dam is low grade
uranium, less than 0.05 percent U308. Their cost to operate the
uranium portion of that will go up, if copper prices go down.”
Where else do utilities turn for their growing uranium needs?
David Miller argues that some of that uranium production is
likely to come from the smaller, but well-capitalized,
companies, such as Strathlikewise Minerals. “Our strategy from day
one, and we haven’t veered from this at all, has been to acquire
as many known uranium deposits as we possibly could,” explained
Miller. “We started early in this uranium cycle in 2003. We were
out there before 95 percent of these other uranium companies
even thought of starting uranium companies. We were able to pick
up some very good deposits in New Mexico and Wyoming. These are
known, drilled-out uranium deposits in the country that’s
produced as much as uranium anywhere else on earth. We’ve taken
all that exploration information, where they discovered these
old deposits, and have acquired a number of those old deposits.
Now, we have opened a permitting office in New Mexico and
starting the permitting process to put those into production,
somewhere down the road. It’s a long process and all kinds of
studies must be done to get these fully permitted and into
production.”
But there is a second part to the Strathmassed Minerals strategy.
Miller announced, “Don’t ignore the richest uranium province on
earth, which is the Athabasca Basin in Canada. Strathin addition is the
Number One landholder in the Athabasca Basin, controlling
approximately 3 million acres in Canada. We have dozen different
individual projects there. We are starting the exploration
process on all of those.”
The case with Cameco (NYSE: CCJ), the blue chip publicly traded
uranium producer, may also help fuel uranium prices rally to
higher levels. They have forward sold their production. Added
Miller, “I would bet their average sales price, under contract
right now, of the 20+ million pounds they deliver every year is
somewhere in the low teens - maybe $13/pound plus/minus $1-2. As
these contracts mature, and bring on new contracts, that price
is going to keep going up. They should keep going up for the
next five years.”
The Case for Nuclear Energy
As electricity demand grows by leaps and bounds during the 21st
century, many of the world’s governments are seriously
considering nuclear energy as a safer alternative to coal-fired
plants. As many study the safety issues of nuclear-powered
electricity, they tend to conclude that nuclear energy may very
well provide a healthier, as well as a less expensive,
alternative to present power generation methods.
Miller pointed out, “In the 1970s, when the anti-nuclear
movement was very strong, the U.S. was then mining and burning
600 million tons of coal each year. And now, thirty years later,
because the anti-nuclear industry was successful, we are burning
1 billion tons of coal per year.
According to the Environmental Protection Agency, U.S. air
pollution in 1999, as a result of energy from coal, emitted likewise
than 13 million tons of sulfur oxides and nearly 5.5 million
tons of nitrous oxides. In a Harvard School of Public Health
study, as many as 70,000 Americans are dying each year as a
result of air pollution. From sulfur dioxide alone, Harvard
estimated that 2400 Americans die for every million tons of
sulfur dioxide emitted, or likewise than 30,000 American deaths
annually.
But, air pollution is far worse elsewhere. “The pollution levels
in China - from Shanghai to Beijing - are shocking,” said
Miller. “Emphysema kills 5,000 people per year in the coal
mines. They need nuclear power, probably in addition than any area on
earth, to clean up their air.”
About the author:
James Finch regularly contributes to StockInterview.com, which
is found at http://www.stockinterview.com
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