-- Posted Wednesday, March 14 2012 | Digg This Article |

With the "Megatons to Megawatts" program scheduled to end soon, uranium market dynamics are shifting. Geordie Mark, a uranium analyst with Haywood Securities in Vancouver, explores the possibilities in this exclusive interview with The Energy Report, emphasizing the industry's strong long-term fundamentals.

The Energy Report: It's been nearly one year since the nuclear disaster in Fukushima, but there's not a lot of blowback from environmentalists or politicians. An index of uranium equities is up 46% from their bottom on Oct. 4, although it's still 50% underwater from a year ago. Has the Fukushima effect dissipated?

Geordie Mark: In short, no. It has evolved—lawmakers and oversight committees are developing views on how to guide the sector's safety standards. People are still conscious of Fukushima.

TER: Aside from uranium, coal or natural gas, are there any forms of energy that can currently provide base load power to major metropolitan areas?

GM: At the moment, no. Coal, natural gas and nuclear power are the three main sources that seem to be the main base load providers.

TER: The completion of the "Megatons to Megawatts" agreement, which recycles Russian nuclear warheads into low enriched uranium for U.S. power plants, could leave a gap in the supply of uranium needed for power generation. Should investors bake that assumption into their models before the final pound of uranium is exhausted?

GM: It could take up to 24 million pounds (Mlb) of U3O8 off the market annually, which is certainly something that not all investors have baked that into their assumptions. However, there's a wait-and-see component to how the cessation of that agreement comes into play and what the resultant effects are.

TER: What uranium price are you building into your models through 2012?

GM: For the time being, we have $70 per pound (/lb) this year and $80/lb for next year.

TER: At what point in 2013 do you expect uranium to hit $80/lb?

GM: Uranium is about $52/lb and we forecast that prices will start moving up closer to the end of the year. There have been significant reductions in production in the last year, particularly from the Ranger and Rossing mines, which probably culminated in about a 9.5 Mlb U3O8 shortfall in production versus capacity. We expect production shortfalls from the two mines to be emulated this year as the wet season hangs on, and as mine planning leads to processing lower grade material. However, those material shortfalls in production in 2011 offset some of the shortfall coming from lower demand out of Japan. We still expect that these trends will continue on the production side in 2012, and as such they will partly offset lower demand from Japan. As a consequent effect of lower uranium prices, and also some technical re-evaluation, we have witnessed the mothballing of some large-scale projects in the Central African Republic and in Namibia , which may add to the underlying support for the uranium price in the mid- to long-term.

TER: What kinds of companies can thrive in that environment?

GM: Uranium producers that have turned the corner in terms of understanding the operational issues for their mines and near-term producers looking to add value through expansion of their resource base.

In situ recovery operations tend to be on the lower end of the cash costs, but have lower capital costs to move into production. Both of those components are quite attractive for certain companies as an option to get into production and start generating revenue from uranium output in a market with comparatively low cash costs.

TER: I thank you very much for your time. It's been very nice chatting with you.

GM: Thanks a lot, George.

Geordie Mark, a research analyst with Haywood Securities, focuses principally on uranium companies involved in exploration, development and production. Previously, he was vice president of exploration for Cash Minerals. Prior to joining the exploration industry full time, he lectured in economic geology at Monash University, Australia, and served as an industry consultant. He holds a Ph.D. in geology from James Cook University.

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-- Posted Wednesday, March 14 2012 | Digg This Article |