Race to Feed a Power-Hungry World
By: The Energy Report and Rick Mills
-- Posted Tuesday, June 28 2011 | Digg This Article |
Uranium and potash prices seem to be inversely correlated lately: As potash prices reach their highest levels, uranium prices have suffered. But Richard (Rick) Mills, host of Ahead of the Herd online and editor of the Ahead of the Herd newsletter, believes the prospects for both industries are bright. In this exclusive interview with The Energy Report, Rick explains why the U.S.' commitment to nuclear power and even biofuels is helping to propel both markets.
The Energy Report: German Chancellor Angela Merkel recently decided to shut down the country's nuclear reactors that began operating prior to 1980. Germany will ultimately disband its nuclear energy program in favor of gas and wind power following the fallout from Japan's nuclear disaster in March. Meanwhile, Japan is also attempting to lessen its dependency on nuclear power. How has that disaster permanently changed the uranium market?
Rick Mills: It's a short-term hiccup and it's probably presenting us with one of the greatest buying opportunities for carefully selected uranium stocks that a retail investor can get. The global nuclear renaissance that was underway in early 2010 was happening for specific reasons: concerns about climate change, reducing carbon footprints, energy security and the rising cost of fossil fuels. And then the disaster hit. It gave pause to the renaissance, but none of these reasons have gone away.
Germany's kneejerk reaction shut seven of its nuclear reactors. They won't be opened again. Its other reactors will also be completely mothballed by 2022. But the thing is that in 2002 Germany's center-left coalition enacted a law to phase-out nuclear power. Last autumn, Merkel's center-right coalition government decided to extend the lifetimes of the country's 17 reactors by an average of 12 years. That decision was based on a judgment that Germany could not meet its power demand using only natural energy sources, such as wind and solar. The country doesn't have abundant natural gas reserves. So, I find it pretty ironic what's happening over there. I think Germany may suffer when it finds it can't maintain its manufacturing competitiveness. Germany is now burning more coal, and already buying more nuclear power-generated electricity from France and the Czechs, who use the old Soviet-style reactors.
TER: There's a lot of talk right now about thorium replacing uranium as the fuel in nuclear reactors. These reactors could use thorium, which is much more stable than uranium, and roughly performs the same function. Do you think that thorium will ultimately replace uranium?
RM: Ultimately, but we're 35 to 40 years away from incorporating that technology. Uranium's got a long way to run. I believe thorium will be the answer one day, but not for several decades at least.
TER: What about the U.S.? It has some reactors slated to come onstream over the next 5 to 10 years. Do you think that the U.S. is going to follow suit with Germany?
RM: The U.S. is going to ramp up its nuclear power. On April 21, the U.S. Nuclear Regulatory Commission renewed the operating license for the U.S.'s largest atomic plant, the Palo Verde nuclear generating station in Arizona, for 20 years. The U.S. Department of Energy just dedicated a new research facility on May 3. The U.S. is accelerating the advancement of nuclear reactor technology. It's studying the performance of light water reactors and developing highly sophisticated modeling that will help accelerate upgrades at existing nuclear plants.
That doesn't sound like the U.S. is in any way, shape or form going to cut back. As a matter of fact, U.S. Secretary of Energy Steven Chu just said nuclear energy is the nation's largest source of carbon-free power and it is an important part of the U.S. energy mix moving forward.
Uranium supplies are going to get very tight. There's going to be fierce competition for available material in both the spot and long-term markets. Investors should be looking at uranium-focused juniors with money in the treasury. We're being set up for the perfect storm in uranium.
The spot market is definitely going to tighten up before then and people are going to be looking for long-term contracts. This setback, if anything, makes the market stronger. Prices will eventually move higher.
TER: Potash has somewhat of an inverse relationship to uranium prices. Earlier this month, corn futures reached an all-time high, which ultimately means higher food prices for all of us. It also means there's a greater need for fertilizer and that bodes well for junior mining companies looking for potash. Do you believe that potash prices will remain as high as they are now?
RM: Yes I do and going higher. Food and how we grow it are going to be dominant investment themes for decades to come. Our population increases geometrically. Our food supply can only increase arithmetically. We've got major problems in addition to our growing population. One of the biggest threats we are facing is the loss of arable land that was used for food production. Land is being used for biofuels, topsoil is being eroded away and the agricultural land base is being paved over. We're destroying our freshwater aquifers. But world population growth and three billion people climbing the protein ladder are the elephants in the dining room. Tonight, 220,000 new mouths will need to be fed at the dinner table.
TER: How does potash mining differ from gold or copper mining?
RM: Unlike other resource plays, potash does not have a cycle. Demand is always going to be there, which makes potash an excellent play in a long-term agricultural commodities bull market. Potash markets are never disrupted by political interference. Food shortages will always trigger social and political instability, such as the riots in the Middle East and Africa. All governments fear a hungry populous.
TER: Is there a point where juniors get on the radar screen of larger companies and wake up the sleeping giants?
RM: Definitely. I think the major players are probably looking for at least a prefeasibility study. They want to see solid numbersócapital expenditures and costs of production, net present values and internal rates of return that actually have solid studies behind them. None of these majors have a history of moving too quickly. They're trudging behemoths that do things at their own pace and need surety in a deal.
TER: What are some things that investors should keep in mind when investing in potash companies?
RM: It's a long-term investable trend and with surging prices for agricultural commodities, farmers are looking to boost crop yields, opening the door for fertilizer makers to raise prices. There might be temporary weaknesses, but everybody has to eat and there are 220,000 more of us at the dinner table every night. So there are compelling reasons to be looking at these companies. Also, these are not cheap mines to build. The companies need management teams capable of going out there attracting the interest from the institutions and raising the money necessary (all three companies I mentioned do). Their neighborhood is also important. Who's in the neighborhood? Could a company be a takeover target?
TER: Thanks, Rick.
Richard is host of www.Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: The Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.
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-- Posted Tuesday, June 28 2011 | Digg This Article |
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