Today, we’re experiencing what has been termed the “Nuclear Renaissance.” There are two aspects to this. One is domestic. The other is international, but related to the first because U.S. politics affects the ability of American companies to export nuclear technologies and products…

There is no energy shortage. The world abounds with easily accessible nuclear fuels. What we have is a shortage of common sense. If not for the anti-nuclear movement, we would be several generations ahead in the technology. Energy would be abundant and far cheaper.

“The nuclear renaissance is dead,” writes Agora Financial managing editor Chris Mayer in his Capital & Crisis newsletter.

“Long live the nuclear renaissance!” insists your Whiskey editor.

“…Eventually…” he sheepishly adds, “and just not with uranium…”

Or as Patrick Cox Patrick Cox recently put it:

The biggest long-term impact from the tsunami, beyond the incredible personal losses experienced by so many Japanese, will probably be on the nuclear power debate. In the short term, we’ll see opposition to nuclear grow. In the long term, however, I think it is going to be very good for thorium nuclear power.

Sadly things are not going nuclear’s way just now. Like a man photographed walking out of a brothel, nuclear will require some fast-talking to save its reputation.

Chris Mayer counters Patrick’s optimism:

No one can say what the effects of the Japan disaster will have on the nuclear industry. It’s too early. But we can guess. My guess is that the nuclear industry has just been dealt another major setback akin to Three Mile Island. Japan alone makes up 11% of the world’s demand for uranium. I suspect it will use less in the future.

I suspect many of the plants in Europe, both planned and existing, are in jeopardy. I think some of the reactors on the drawing board will die on the drawing board. The whole process of developing nuclear energy will slow. The industry will feel the chill from Japan for years. That’s my guess.

The facts won’t matter. Look at what happened in the Gulf after BP’s oil spill. All drilling ceased. It didn’t matter what your safety record was. And even now, drilling permits are incredibly difficult to come by.

Of course Chris likely has the right of it for now. The near-term outlook for uranium stocks may indeed be very dim (but Chris has a wealth of other investing options set to make more gains).

But nuclear itself remains the most promising source of clean, abundant (read: “cheap”) energy. We’re going to have to use it if we want to be able to afford to keep the lights, the air conditioning, heating, laborsaving appliances and computers on.

The nuclear you knew and love — the one based on uranium — may be down and out…but there’s another nuclear on its way. And it looks to be unstoppable. If you’re wondering what how this new nuclear will be different, Patrick Cox has the answer:

The answer is the clearly superior fuel, thorium.

Thorium is far more abundant than usable uranium. Thorium reactors produce far less waste products that are much less hazardous…Thorium nuclear power generation is inevitable. The problems demonstrated with Japanese water reactors will, I believe, hasten the transition.

The biggest problem with nuclear energy isn’t safety, according to a recent Washington Post article; it’s the cost.

“Concerns about safety lead to extensive regulatory approval processes and add uncertainty to plant developers’ calculations — both of which boost the price of financing new nuclear plants.”

Far be it from us to bash costly and ultimately useless regulation. Let’s instead look at the bright side…

“It’s not clear how much these construction costs would fall if safety fears subsided and the financing became cheaper — and after the Fukushima catastrophe, we’re unlikely to find out.”

It seems the article writer has little appreciation for the demand for cheap energy or for thorium’s ability to eliminate the dangers inherent in uranium use.

A lot of people will change their tune about nuclear when they see just how expensive other energy sources can get…and when they realize how needless their fear of nuclear really is, especially when it comes to thorium power.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder

March 23, 2011

Why Thorium Nuclear Power Is Inevitable was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I’m not talking about the cake your grandmother brings to your birthday party, either. I am talking about refined uranium (U3O8). The price of uranium has seen a kind of growth second to no other commodity, equity index, or virtually any other investment vehicle available. From 2003 to the present, the spot price of uranium went from $7 to $130 per pound without declining once. That’s a 1,700%-plus increase over a five-year span.

I’m here to tell you that this amazing price run is not over yet, not even close. In fact, this market is just barely starting to catch the public eye, but once it becomes mainstream, the uranium market will really take off.

Uranium: Supercycle

Uranium is the perfect case study for discussing the notion of a supercycle. A commodities supercycle refers to the extended periods of time when either supply exceeds demand, followed by demand exceeding supply, or vice versa. This cycle extends of a period of several years. Let me explain its relevance to uranium.

Most of the demand for uranium came from the U.S.’s and the USSR’s amassing nuclear warheads. After the fallout of the Cold War, and the incidents at Three Mile Island and Chernobyl, the demand for uranium plummeted. Nuclear power plants that were planned for production were canceled at a very rapid pace. And to add further downward pressure, much of the demand that was still left was fulfilled by recycling old Soviet warheads, which is a process that goes on today.

For all of these reasons, the spot price of uranium slumped to a low of $6.50 per pound. Being that uranium miners’ revenues directly depend on the spot price of uranium, this drove the majority of them out of the market. This is the lag period when supply greatly overexceeded demand. In this case, it was fueled by a couple of extraneous factors.

Let’s fast-forward to 2003. The green energy movement is starting to take hold of the media, public, and Washington alike. Geopolitical tensions are making it essential that nations secure energy resources and become less dependent on politically unstable regions — especially the Middle East.

So nuclear energy is back, except there’s only one problem. There are very few uranium mines still in production, and exploration efforts are essentially nonexistent. It was around 2003 that we began to transition from excess supply to excess demand.

Time to get the shovels digging, the leach operations running, and the mills churning… That’s easier said than done — these processes take time.

An exploration company needs to be formed, and funds need to be raised. The company then needs to either lease or buy land for exploration. The next step involves using radiometric and magnetic survey equipment to prioritize potential exploratory drilling locations. Before any ground is broken, the company needs to obtain permits. This step might be the most underestimated as far as time consumption and difficulty are concerned. The inability of a company to obtain a permit is essentially the end of that company.

Assuming that the company does get its permits, it has to conduct numerous drilling tests. The test samples need to be treated with chemicals and then assessed for further testing. Again assuming that everything goes well with the drill tests, the company can go ahead and set up a mining operation, whether it be a leach setup or a more conventional mine. Infrastructure needs to be set up, and workers need to be brought in. During this whole process, time is ticking away. Once the ore has been removed from the earth, it needs to be transported to a mill for further processing. The product is eventually refined into the final product, U3O8.

Notice my use of the word “assuming.” Those are very big assumptions, and that’s why a very small minority of these companies actually make it to the production phase.

Just look at all of the places where a company could hit a dead end. Operating capital could dry up. There could be a failure to obtain permits. What if there’s no uranium on your property?

The production of these mines takes time and money. Even if everything goes well, you are talking at least six years until a mine becomes operational from initial exploration, and it’s for this reason that there is a long period of time during which demand exceeds supply. This shortage will always show up in price, and that’s exactly what we have and will continue to see. This has directly shown up in the supply and demand for yellowcake.

Uranium Supply

The theory of commodity supercycles clearly explains why supply has lagged behind demand and will continue to do so over the coming years. But there is another story behind the supply shortage in uranium.

Uranium deposits often occur in geologically fragile areas. In other words, uranium mines are susceptible to disruptions. This is a risk with any mine, but the risk is higher with most uranium mines. Just look within the last eight months — two major mines have been flooded, which caused significant delays in future production.

The two mines are Cameco’s Cigar Lake operation and Energy Resources of Australia’s Ranger mine.

Let’s start with the situation at Cameco. On Oct. 23, 2006, Cameco announced that its Cigar Lake operation had experienced flooding in parts of the underground mine due to a collapse of rock formation.

This mine was planned to come into production in 2008. After the flood, Cameco announced that production would be delayed one year. It looks like the company was a little optimistic, because it recently came out and said that the remediation process was taking longer than expected. It pushed the expected production date back to 2010.

The impact of this flood is very significant on the market. Cigar Lake had the world’s largest undeveloped high-grade uranium deposit. The proven and probable reserves are estimated at 226.3 million pounds of U3O8, with an average 21% grade. It is very easy to see the significance of delaying this planned production from the market.

The other operation mentioned was the Ranger mine. The incident here was different. The flooding at the Ranger mine was not a result of geological instability, but a result of Mother Nature. Tropical Cyclone George was the cause of the flooding at the Ranger mine:

This is a very significant loss in production. Energy Resources of Australia’s planned production was revised down to 7.5 million pounds of uranium. That’s a four million pound decline, or 4% of total world production. That four million pounds of uranium is estimated to be worth $340 million.

Energy Resources of Australia claimed “force majeure” on its contracts for sales. In other words, because of unforeseen events, it has exited ALL of its contract obligations for delivery of U3O8.

Situations like these are unable to predict and carry devastating implications for the supply of U3O8. Remember that these two incidents occurred within the past eight months. Although one can’t say when or where, you can bet that we haven’t seen the end of scenarios like the abovementioned ones.

Uranium Demand

The demand side finishes the bullish picture for uranium. The main catalyst is the move to green energy. Nuclear power plants have no carbon emissions. The growth of nuclear power is just beginning, but planned production is expected to greatly increase the demand for uranium.

Here is a list of the amount of power plants planned for production: U.S., 34; China, 40-plus; Russia, 42; S. Korea, 11; and many others. That is combined with the 448 nuclear power plants currently in production.

The end result of this is an annual rate of consumption currently running at 188 million pounds of U3O8 per year, compared with an annual mine production of 100 million pounds of U3 O8 per year. The difference is made up in excess ore pilings and old Soviet warheads being converted into nuclear fuel.

For a brief snapshot of the market, last month, active supply (the amount of U3O8 for sale) was approximately two million pounds. Active demand (buyers currently seeking uranium for shipment) was 4.4 million pounds. These buyers are the reason that the price of yellowcake has been getting bid up at such an extreme pace. And not all of these buyers were able to secure U3O8 for shipment.

The uranium market is very transparent. This makes the supply and demand fundamentals extremely easy to read and interpret. Supply disruptions have increased the shortages of available uranium for delivery. Junior and intermediate miners are all racing to get production online, but the general public has trouble understanding the time and money it takes into turning these properties into profitable ventures. The use of nuclear energy as an alternative to carbon-based fuel sources has really set into place the emergences of a fantastic bull market.

There is going to be a very innovative way to play this market. In mid August a nuclear energy ETF was released here in the U.S. The ticker is NLR. It follows the DAXglobal Nuclear Energy Index. This is an ETF that invests in the following fields: uranium mining, uranium enrichment, uranium storage, nuclear power plant builders, nuclear fuel transportation, nuclear equipment and generation. This is really exciting stuff and its price will very likely jump, being that it is one of a kind here in the U.S. Given a good buy price, this one is a safe and potentially highly profitable way to play the uranium market.

Regards,
Nick Jones

September 4, 2007

A “Yellowcake” ETF was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

It could be a bumpy ride, though. I’ll tell you about forces that should drive uranium higher, as well as a few that could drive it lower in the short term.

2007 Could Bring an M&A Feeding Frenzy in the Uranium Mining Industry

Two weeks ago, I attended the 2007 Vancouver Resource Investment Conference. The size of the conference blew my mind! There were way more exhibitors than last year, and the hall was jampacked with investors looking for Canada’s natural resource bargains.

They were finding them, too — in gold, silver, lead, zinc, nickel, diamonds and many other things. And my favorite metal, uranium, is so hot that the exhibitors set up a special “Uranium Alley” so investors could find these companies more easily.

As I talked to miners at the conference, a couple of things became clear:

Staff is at a premium. Rockhounds love what they do, but even they can’t do it forever. And when the price of uranium cratered in the 1980s, staffs were decimated. About 20,000 engineers and geologists worked in the uranium sector in American companies during the last uranium boom. That number is about 400 now, too many of whom are close to retirement age. So if you can find a company with a fairly “deep bench” of uranium mining experts on its payroll, those guys are worth their weight in gold.

One solution to the staffing shortage: mergers. If two companies each with three expert rockhounds merge, that company now has six experienced prospectors to work on the best of its projects.

Speaking of projects…

Patchwork quilt of claims lays groundwork for merger mania. Look at a map of any uranium-prospective territory and you’ll see a patchwork quilt of claims. Heck, I could practically see some deals coming to mind across the exhibitor booths, as CEOs of various companies finally got a chance to get together.

I imagine the conversations started something like this: “Hey, you have two working projects in the Athabasca Basin, and I’ve only got one claim there and no time to work it. Meanwhile, you’ve got a stray property near my project in Wyoming. Let’s make a deal!”

These two factors should pump up M&A activity in an industry that is already riding a growing flow of investor cash. I even got the feeling at the conference that if I changed my name to Sean Uranium Inc., suddenly I’d find myself raising a ton of cash pretty quickly.

Well, that’s half in jest. But I’m dead serious about the forces driving uranium, though — forces that are approaching critical mass…

Why I’m Convinced the Second Wave of Uranium’s Bull Market Is About to Begin!

I call uranium the “white-hot metal,” and not only because it glows in the dark. During the course of 2006, the uranium spot market price continually climbed by 99%, from $36.25 to $72 per pound of U3O8. At $75 per pound, the price is now more than 10 times its record low of $7 per pound that it hit in 2000.

The first big move in uranium is over — the next one is about to begin. And if uranium prices DOUBLE from here — which I think could easily happen — some of these small-cap wonders I’m looking at could go to the moon.

I believe we’re poised to enter the “Second Wave” of uranium’s big bull market…probably the biggest bull market the world has ever seen.

Despite the big bull rally in uranium over the past couple years, on a historical basis, it’s still dirt-cheap! Uranium hasn’t come anywhere near its old peak in inflation-adjusted terms. In 1978, uranium topped out at $43.40 per pound — but adjusted for inflation, that’s around $145 per pound in today’s dollars. It’s now trading at $75 per pound. That means uranium could nearly DOUBLE and still not surpass its old inflation-adjusted highs.

That’s why I think we’re looking at $100 uranium by the end of this year — a 39% move from recent levels. Pretty sweet — and even then, uranium will still have plenty of room to run! How high? Let me show you…

Forces That Could Drive Uranium to $100 per Pound…and Beyond

Force #1: The Supply/Demand Gap

Consider these facts…

1. About 16% of the world’s electricity came from 440 nuclear reactors last year, according to the World Nuclear Association. Currently, there are 28 reactors under construction around the world and another 62 being planned:

2. An additional 100 plants will be built in the next 10 years, with 40 of them in Asia.

3. Bottom line: By 2050, scientists estimate the world will need about 900 more nuclear power plants to keep up with growing energy requirements.

As a result, the undeniable reality is that demand for uranium is outstripping supply. In 2005…

• Supply from mines was 102.5 million pounds
• Demand was 171 million pounds
• The gap was 68.5 million pounds.

Totals for 2006 aren’t in yet, but demand probably topped 180 million pounds. And as new nuclear power plants come online, that demand will grow. A typical 1-gigawatt nuclear reactor requires around 200 metric tonnes of natural uranium per year. During startup, a new nuclear plant can use TRIPLE its normal requirements.

The fact is production from world uranium mines now supplies only 62% of the requirements of power utilities. The rest is made up from rapidly dwindling stockpiles, mainly old Russian nuclear warheads that are converted to material for power plants. That agreement expires in 2013, and won’t likely be renewed, since the Russians have a very ambitious nuclear program of their own.

Moreover, here in the U.S., utility consumption of uranium outpaces U.S. uranium production by more than 20-to-1.

Force #2: Crisis at Cigar Lake

Uranium prices were already climbing steadily when the nuclear power industry was rocked in October by disastrous news out of Cameco’s Cigar Lake Mine.

Cameco planned to bring Cigar Lake online in 2008, with 7 million pounds of uranium in the first year and full-scale production of 18 million pounds annually thereafter. Keep in mind, 18 million pounds is more than a tenth of last year’s total global demand of 171 million pounds. That’s like the global oil market losing Saudi Arabia’s production!

In 2008, uranium demand was already expected to exceed supply by 25 million pounds. With Cigar Lake seriously delayed, that gap will be 32 million pounds. Put another way — the shortfall in uranium is going to soar by 30% just in 2008.

Sure, Cigar Lake will be brought into production eventually. But meanwhile, demand keeps building up. Uranium consumers around the world can see this squeeze coming, so the race is on. That explains why spot uranium prices basically doubled in the course of a year, and the stocks of near-term uranium producers vaulted higher.

Cigar Lake could be a force driving uranium prices this year both UP and down. I’ll tell you more about that in just a bit.

Force #3: China, the Uranium-Devouring Monster

China deserves mention as a force all its own. How hungry is China for uranium? The Chinese are hot-footing it through the Australian outback with bags of cash, investing in the best small companies sitting on large quantities of uranium. And no wonder! China plans to import 2,500 metric tonnes of Australian uranium per year by 2020, as it builds 24-30 new atomic power plants.

The really bullish news is that China’s total expected annual uranium demand is three times as much — 7,500 metric tonnes. And it will use every pound of it, as China plans to construct two new 1,000-megawatt nuclear reactors every year, including two coming online this year.

Force #4: Global Warming Trumps Everything

Fact: The 11 hottest global temperature years (since records began in 1861) have been since 1990.

The ice caps are melting at an alarming pace. And whether it’s hurricanes in the Atlantic or typhoons in the Pacific, storms are whipping up with an intense fury. Unless your name is “ExxonMobil,” there is very little argument about why this is happening. A normal global warming cycle is being worsened by man-made pollution — greenhouse gasses that trap heat.

And though people rant and rave about gas-sucking SUVs, the biggest source of greenhouse gasses (apart from methane-farting cows and other livestock) is coal-fired power plants. People point to the fact that China is building a new coal-fired plant every week and shake their heads. Well, here in the U.S., we have about 150 new coal plants planned or already being built. Many of these are using “old-coal” technology for cost savings.

It’s almost as if China and the U.S. are engaged in some kind of suicide pact. And I doubt it’s going to have a happy Hollywood ending.

There is hope, though. Awareness of the crisis of global warming is becoming so acute that major corporations are joining forces with environmental groups in an unprecedented alliance to push for quicker action on global warming. The alliance of greens and Corporate America is called the U.S. Climate Action Partnership, and we’re talking some really BIG names here: Alcoa, BP America, DuPont, General Electric, FP&L Group, and more. One of the solutions to global warming is nuclear power.

Here’s why: An operating nuclear power plant produces zero greenhouse gases. Compare that with your average coal plant, which can spew 3.7 million tons of carbon dioxide (a greenhouse gas) into the air every year, along with hundreds of tons of heavy metal-laden ash.

I expect public awareness on this issue to grow over the next few years and the public to start demanding utilities make the switch. This boosts nuclear power in two ways — increasing demand for uranium at power plants and lifting bans and overregulation on mining.

Force #5: Peak Oil and Peak Natural Gas .

In 2006, global oil demand grew 0.9%, thanks to steady growth in China and the Middle East. The world used 84.5 million barrels of oil per day last year, according to the International Energy Agency. That’s nearly 31 billion barrels, and the most oil used in a year…EVER. What’s more, world demand is forecast to rise 1.6% this year to 85.77 million barrels a day.

Worldwide oil and gas reserves are becoming depleted at an ever increasing rate, with many analysts convinced that we are fast approaching Peak Oil and Peak Natural Gas.

In fact, the former Soviet Republic Belarus, which was hardest hit by the Chernobyl nuclear accident, is pulling out all the stops to accelerate its nuclear energy program. Reason: President Alexander Lukashenko is desperate for an alternative to Russian natural gas that is fast rising in price.

If Belarus is embracing nukes, I believe even the most die-hard holdouts won’t be far behind.

Force #6: Nuclear power looks cheaper all the time.

Standard & Poor’s recently published a study showing that the next wave of nuclear power plants should be able to produce electricity at $55 per megawatt hour, versus the average rate of $50 per megawatt hour at a coal plant.

Even the $55 figure may prove conservative, because the second wave of nuclear plants could benefit from standardization. All told, the cost of a megawatt hour could potentially drop to about $44!

That’s right: Nuclear power could end up being cheaper than coal, and without the tons of greenhouse gases and poisonous ashes that coal plants spew into the atmosphere.

Force #7: The Feeding Frenzy Could Get Even MORE Intense Next Year

Most uranium is sold under long-term contracts. But the utilities that contracted for uranium in the future are finding they’re coming up short, and for good reason: When a nuclear reactor is first fired up, it can use TRIPLE its normal amount of uranium oxide.

While the price of uranium is rising, suppliers can still scrape together enough to meet demand. But come 2008, we may reach a tipping point. A lot of uranium users don’t seem to have enough contracts to cover their needs. And many of the contracts they do have are ending — which means suppliers can negotiate at MUCH higher prices.

So if you think uranium prices have been on a tear so far, just wait…2008 could be an even more intense feeding frenzy.

And when you come down to it, we should see prices move well in advance of that. That, in turn, should take the stocks of small, well-managed companies sitting on big resources and potentially send them ballistic!

Can Uranium Prices Come Down Temporarily? Heck, Yeah!

In fact, I’m hoping we get a pullback. That would be a golden buying opportunity.

Here are a few factors that could drive uranium lower in the short-term…

1. Russian imports. Right now, Russia has two choices. It can sell uranium to the U.S. market through the United States Enrichment Corp. (USEC) or it can pay a 116% tariff. But Russian-owned Techsnabexport is working on a new civilian nuclear power deal between Russia and the U.S. You can bet that U.S. utilities, desperate for lower-cost uranium, are pushing hard for this deal, which could come as soon as the first quarter of 2007.

2. Cigar Lake update. Last week, Cameco announced it expects to seal off water flow to its Cigar Lake uranium mine by the second quarter. But it has delayed preliminary cost estimates and timelines, which were supposed to come out in February, until late March.

Does that sound to you like Cameco’s going to get that mine back online anytime soon? It sure doesn’t sound like it to me.

So Cameco is STILL having trouble stopping water from flooding the mine. One engineer I spoke to in Vancouver joked that so much water is pouring in, Cameco should stop trying to mine uranium at Cigar Lake and turn it into a hydroelectric project.

Nonetheless, it would be surprising if the March report isn’t upbeat. Corporations have a way of putting even the worst news in the best light…and maybe Cameco will surprise everybody by reporting actual good news.

On the other hand, if Cameco pushes its timeline for Cigar Lake back by years, uranium could lift off the launch pad.

3. Overspeculation. I like speculation as much as the next guy, but according to a recent update from TradeTech’s Nuclear Market Review, “Speculators are holding about 24 million pounds of U3O8 equivalent.” That is about 22% of global uranium production in 2005.

So if Cameco announces good news on Cigar Lake, or if Russia’s Techsnabexport hammers out a trade deal, speculators could decide to sell, temporarily exaggerating any short-term decline. The Uranium Participation Corp. is holding a bunch of uranium with the intention of selling to utilities at a higher price at a later date. If prices start to go down, the fund could decide to start unloading.

SUMMARY: I expect a pullback in uranium prices this year, but it will be a short-term correction in a big bull market. What I recommend is you put HALF your money to work NOW, then put the rest to work if and when we get a sizeable pullback.

If uranium doesn’t pull back, at least you’re in the game. If uranium does pull back, you’ll average in for a better price.

Good luck, and good trades.
Sean Brodrick

February 7, 2007

7 Forces That Will Drive Uranium to $100 Per Pound in 2007 was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.