Barbara Thomae: Uranium Will Rebound with Economy

The Energy Report checked in with Barbara Thomae, Senior Mining Analyst with the MineralFields Group, who says that they believe the economic recovery will spur reinvestment into the uranium sector, especially once uranium prices strengthen in line with other commodities.

The Energy Report: There’s a lot of “news” swirling around uranium (i.e. Russia has a moratorium, China is building dozens of nuclear facilities, recession is pausing development of nuclear facilities and more.) What’s the truth regarding uranium? What should investors in this sector be watching?
Barbara Thomae: All this news does seem to be confusing investors and part of the problem is that there is no formal physical exchange for uranium as with other commodities like precious metals or oil. Indications for the price of uranium appear to have been trending lower (now at US$48.50 per pound) at a time when other commodities are trending higher in anticipation of an end to the recession. We believe that since uranium prices are negotiated through contracts between producers and consumers, investors need to look at the long-term supply and demand equation when it comes to uranium. They should consider the positive impact that the global acceptance of nuclear energy will have on the demand side over the next 10 years. Countries are definitely getting more politically motivated toward utilizing nuclear energy as a viable non-greenhouse gas-generating alternative to oil or coal.

TER: Is there a current or pending shortage? How large (in size or duration) is the shortage?

BT: We understand that mined production of uranium fell short of consumption by 60 million pounds last year, and the shortfall was made up by using recycled nuclear material from weapons from Russia. But this agreement is set to end in 2013 and if it is not renewed, primary uranium production will need to be stepped up significantly. With some 436 new reactors being planned worldwide, uranium demand is expected to rise at least 30% over the next decade.

While many assume that the supply from primary uranium sources (mines) will be there to meet demand, we believe that this is wishful thinking considering that new uranium deposits are very hard and expensive to find and then equally as complicated to permit and develop, creating a huge time gap between discovery and mining phases. The Europeans and Asians are not taking any chances and are busy locking into uranium supply deals now when prices are low. There are reports out that the Japanese government is encouraging domestic companies to invest in Australian uranium mining ventures to secure its nuclear fuel requirements down the road. Cameco, which controls some 15% of global supply, is in talks with the Chinese about a possible supply agreement.

TER: To what extent is any pending gap between supply and demand reliant on increased demand from new facilities being constructed versus ongoing operations of existing nuclear facilities?

BT: Since about three times as much uranium is required during the start-up phase when compared to reactors that are operational, we believe these new facilities will be responsible for a significant increase in future demand. In addition, the new reactors will be higher capacity than those operating, thereby adding to the demand.

IBTimes