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Nuclear Industry Thinktank Warns of Coming Uranium Shortfall

By: UraniumSeek

-- Posted Monday, September 21 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:

Every two years, the World Nuclear Association (WNA) issues its “state-of-the-union-address” on the uranium industry.  The 2009 meeting just ended in London England, and several themes became very apparent:

1.            Uranium production is not keeping with previous forecasts

2.            Demand for uranium is increasing

3.            There is enough uranium to meet demand, but getting it into production will be difficult

For investors, this means that despite current low uranium prices, the market will only get better and companies with projects now in development can look forward to higher uranium prices at some time in the future.

The WNA has reduced its production estimates over the next few years by between 10 to 18%.  Included in this number is reduced production from assets such as Cameco’s Cigar Lake (18 MM lbs pa), Midwest (8 MM lbs pa) and Uranium One’s Dominion (3 MM lbs pa).

On the demand side, the WNA said that installed nuclear generation capacity of 372 GWe provided about 15 percent of global electricity supply last year. The report forecasts a 12 percent increase in nuclear generation capacity to 415 GWe by 2014 and to 600 GWe by 2030.

(In a recent report, The International Atomic Energy Agency (IAEA) also increased its nuclear power projections for 2030 due to continued expansion plans for nuclear power in Asia, including China, Japan, and South Korea. The low projection foresees an installed global nuclear power capacity of about 510 GWe in 2030—a 40 percent increase over the currently installed 372 GWe. The high projection expects 810 GWe, which more than doubles today’s installed capacity. The IAEA notes these revised projections for 2030 are 8 percent higher than last year’s projections. )

To meet that demand, the WNA expects uranium requirements to rise by 65% by 2030. Reactors needed an estimated 168 MM lbs of U3O8 for 2008, and this is expected to rise to 200 MM lbs in 2015, 238 MM lbs in 2020 and 276 MM lbs in 2030 in the reference scenario. This is an annualized growth rate of 2.2%

Many uranium analysts have prepared summaries on the WNA report. And one common item that every single research report said that the WNA did not take into account the larger initial orders that the new reactors would be making.  You don’t build a $6 billion reactor and watch it go idle because you didn’t order enough fuel.  Initial orders are usually 6 months – 3 years worth.  And it’s becoming obvious that the Asian utilities in particular are ordering a couple years worth of uranium at least. 

So this initial stocking of new reactors has the ability to spike up demand even more than WNA reports. As do strategic stockpiles that nations like China may begin accumulating.

The big question is – how will the industry meet this increased demand with a uranium price at US$65 per pound?

At the WNA, a Cameco staffer presented a paper that showed most of the new uranium projects being discovered or developed from this metals cycle are typically lower grade, higher cost mines and will require higher uranium prices to get them into actual production.

And this is where the problem lies: there is LOTS of uranium around to meet demand. But exploration to find economic deposits is falling off a cliff. And with long lead times to get a uranium mine into production – up to 10 years – the industry is setting itself up for a shortfall in uranium in the medium term – and a big spike in the price of uranium.

Many of the development stage assets in the world right now are lower grade deposits (actually, they are NORMAL grade; it’s just that investors have got used to the Athabasca Basin as being the new normal – it’s not.  It’s a geological freak of nature where the grade is 20-40 x everywhere else on earth) which are highly sensitive to the uranium price.  And under $75 - $80 per pound uranium, they just don’t make money.

There is a tight bottleneck here for the industry.  Right now the uranium price is being depressed because of an overhang that the US Department of Energy has – some 158 million pounds that could be put on the market to fund some uranium infrastructure in the U.S. - investors should remember that the uranium market is still in deficit some 60 million pounds a year.

But for patient investors, the junior uranium companies - those with an established asset that is gearing for production – represent value sitting under a coiled spring.  The WNA report shows while there is enough uranium to meet supply, the uranium price has to move higher to make it all economic.

-- Posted Monday, September 21 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:

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