Long-Term Uranium Demand Will Continue
By: The Energy Report and Mickey Fulp
-- Posted Thursday, March 31 2011 | Digg This Article |
The peripatetic Mercenary Geologist Mickey Fulp explains that even if all under-construction and planned nuclear facilities are suspended, not enough uranium is being mined currently to supply ongoing demand. In this exclusive interview with The Energy Report, Mickey reveals a number of companies poised to benefit from this long-term fundamental upside.
The Energy Report: What impact will the damage to the Fukushima nuclear facility in Japan have on the spot price and/or market valuations for uranium companies?
Mickey Fulp: Currently, it is unknown what the fallout (pun intended) from this nuclear incident will be both economically and geopolitically. At the very minimum, Japan has lost a significant portion of the energy output from one facility. Eleven nuclear reactors out of the country's 55 are shut down currently and at least two will never produce electricity again. That energy capacity will need to be replaced by other electrical sources.
Globally, this is the third nuclear plant incident in more than 30 years. The first was Three Mile Island. While nothing of real consequence happened, it did change the perception of nuclear safety. The second incident was Chernobyl where the reactor melted down, resulting in serious environmental and health impacts. That reactor was an obsolete and inadequate design with no containment vessel and was never used in the West. Although Japan's Fukushima plant was using some older technology and we still don't know what the full damage will be, it will not be anything near the Chernobyl disaster.
Anti-nuclear organizations will be emboldened by this situation while pro-nuclear concerns likely will remain so. Looking forward, who knows what the impact will be? Will we see some older reactors come offline? Probably, however, most countries can't afford to shut them down because electrical demand will not decrease. Will we see some reactors in the process of construction stop construction? Perhaps. Will we see nuclear facilities that are planned but not yet started be delayed or waylaid? That seems likely.
TER: If reactors under construction or planned are postponed or abandoned, how much will that impact the demand for uranium? Could we see a uranium price crash?
MF: It wouldn't surprise me if we saw a drop in the spot uranium price and stocks. I don't think it will diminish much uranium demand in the short or midterm, because the fundamentals haven't really changed. There is still a shortage of uranium. We haven't mined enough uranium for 25 years and our current mine supply deficit is 30% of total yearly demand. We've been operating on depleting private and sovereign stockpiles and the conversion of Russian warheads to nuclear fuel rods. The Russian program ends in 2013 and stockpiles are getting depleted to low levels. So, even if all the reactors under construction, planned and proposed, are scuttled, we'd still need more uranium for the reactors that are online currently than we are presently mining.
TER: Do you see any scenario in which the Japan incident will impact uranium prices significantly?
MF: We saw spot prices crater to a low of $49/lb. on March 16 before recovering to $60/lb. on March 21. There will be a price impact but, as for significant damage to the nuclear energy industry, it is way too early to tell. Frankly, I do not know. I do know that current reactors need to replenish stockpiles of uranium periodically and that we don't mine enough at this time. Demand, most likely, will still be there over the short, mid and long term.
TER: Will other energy commodities increase due to this nuclear scare? Specifically, I was thinking about natural gas, which is in abundance and really cheap.
MF: We have a mixed bag of energy prices now and lots of volatility. As the uranium stocks sold off, solar, wind and natural gas stocks took off briefly before reality set in. Solar cannot provide baseload electricity because of night and wind cannot because it does not blow constantly at the same velocity 24 hours a day, 7 days a week for 365 days a year. We don't have the natural gas transportation, storage and filling infrastructure to convert electrical plants or vehicles quickly.
Coal has been the real winner in 2011 with supply disruptions causing rapid rises in price, but it is our dirtiest form of energy and a major pollutant worldwide. Oil prices are high at over $100 a barrel and major volatility is likely to continue due to Middle East turmoil. We also have the ecofascists who preach "clean and green," but then launch lawsuits to stop solar plants in the Mojave Desert and offshore wind farms on the East Coast. What do the NIMBYs (not in my backyard) want, all of us to just freeze in the dark?
In my opinion, we desperately need a viable domestic uranium industry as we strive to reach energy independence in the U.S. I trust that the American people and its politicians and policymakers will continue to ensure that all forms of energy, including nuclear power, play a part in this mix.
TER: In your last Mercenary Musing, which is available to your free email subscribers, you wrote, "Putting in stink bids and patiently accumulating as the market rises and falls is always a legitimate strategy." In general, what constitutes a "stink" bid—20% from the recent price, 25% off the price?
MF: To me, a stink bid is a bid lower than the stock's normal or recent range that implies a lack of interest, a market correction, some sort of selloff, a dormant period with no news or, perhaps, breaking below the 50- or 200-day moving average. Rest assured, I am now closely watching the uranium space for contrarian opportunities.
Michael S. "Mickey" Fulp is the author of The Mercenary Geologist. He is a certified professional geologist with a B.Sc. in earth sciences with honors from the University of Tulsa and M.Sc. in geology from the University of New Mexico. Mickey has more than 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, oil and gas and water in North and South America, Europe and Asia. Mickey has worked for junior explorers, major mining companies, private companies and investors as a consulting economic geologist for the past 23 years, specializing in geological mapping, property evaluation and business development.
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-- Posted Thursday, March 31 2011 | Digg This Article |
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