An Insider's View: The Biggest News Since Fukushima
By: Outsider Club
-- Posted Monday, November 27 2017 | Digg This Article |
Gerardo Del Real: This is Gerardo Del Real with the Outsider Club. Joining me today is president and CEO of Uranium Energy Corp. (NYSE: UEC) Mr. Amir Adnani. Amir, how are you?
Amir Adnani: Excellent Gerardo and Happy Thanksgiving.
Gerardo Del Real: Thank you very much. Happy Thanksgiving to you as well. We recently had the opportunity to catch up, albeit briefly, at the Silver and Gold Summit in San Francisco. I thought it was interesting that cryptocurrency (not surprisingly) and uranium got the bulk of the attention. You were actually on a panel with Dev Randhawa of Fission Uranium and Jordan Trimble from Skyharbour Resources among others focused on uranium. The big news of course, is the closure of the McArthur mine from Cameco. I would love your insights. You're obviously one of the better connected people in this space. Some people would say you're the most connected person in the uranium space and definitely one of the most active people in the junior resource space. Give me your thoughts Amir.
Amir Adnani: No doubt about it, the conference was very positive for the attention that uranium was receiving. Who would have thought uranium would be right up there, receiving the same level of interest as Bitcoin and the cryptocurrencies. And of course, this all goes back to the McArthur River news that you just touched on. This is significant news, as Bloomberg noted, "The Biggest Catalyst for the Uranium Sectors since Fukushima." That's quite a meaty headline, as the event has a major fundamental impact on the market. So McArthur River amounts to about 10% of global uranium production.
Again, putting it into context with the oil market, this would be the same as waking up tomorrow and discovering almost all of Saudi oil production has been taken off the market. I think Saudi Arabia has something like 12% of the oil market. So you can see and appreciate how significant it is. The actual reduction would amount to about 15.6 million pounds. So you're talking about the world's largest mine and mill complex. It's tier one, low-cost production. So this isn't some high-cost mine that they're taking offline and it's in a geopolitically stable jurisdiction. It's low cost and in fact should eliminate most of the excess uranium supply in 2018. I think it sends a really important message to the market and to the buyers of uranium. If there were complacent utility buyers out there they are likely waking up realizing if Cameco is taking McArthur river offline the oversupply is going to be constrained or move into a supply deficit soon. If itís not 2018, it will be 2019, but the point is it will accelerate a market recovery.
What's really important here Gerardo is the fact that the Cameco news comes on the back of other important cuts earlier this year and even going back over the past 24 months. Earlier this year, we saw the Kazakhs announce they were going to cut 10% of their production, which amounted to about 3% of global supply. We've seen other production cuts announced by the likes of Areva, with their mines in Niger. And, there's been other cuts with Cameco projects in the U.S. as well as other companies in Namibia and elsewhere. You add it all up, and we're talking about almost 30 million pounds of production cuts that's occurred over the past two years. That's now about 17% of total 2018 global production that has been cut over the past two years.
Whether this is uranium, zinc or nickel, or any commodity where you start to take that much production out of the market it's going to tighten supply and set the stage for a meaningful price recovery. We are already seeing that action begin in the spot uranium price, since this news came out uranium is up over 20%. So we're seeing a good immediate response. This is very positive and had to happen because global production costs are not covered at $20 per pound. Even the lowest-cost Kazakh production was under pressure. Many producers have had long-term contracts with prices much higher than current spot prices. Those higher-priced contracts have been supporting production costs that are significantly above spot market prices. With these contracts ending and rolling out of supplier portfolios, you knew that there was just no cushion and that shorter-term market prices that have been driven by inventory would have to succumb to a production-driven market with higher prices to support production.
I really would like to remind everyone about what the incentive price is to bring new uranium mines online. It takes 7 to 10 years, at best, to develop a new uranium project. Most feasibility studies out there for conventional uranium projects are looking at an incentive price north of $60 per pound to develop a new project. We knew that a $20 spot market wasn't sustainable and now we've seen something come through with this McArthur river shutdown that truly validates that view. Itís a substantial development. I think we have a perfect storm developing here because you have the supply-and-demand-side constraints coming in at exactly the same time. Japan looks to be accelerating the restarts in Japan, on the back of Prime Minister Abe's recent election victory, where he's really consolidated power now. In 2016 and '15, there were more reactors connected to the grid than any other time in the last 25 years.
We finally have more reactors under construction today than pre-Fukushima. So the sector's really come around and turned a positive corner in terms of long-term growth, which is consistent with our growth profile. I think the key is to pay attention to this developing perfect storm, Gerardo. The fact is, this McArthur news comes at a time where other developments and news in the sector has all been turning positive. I think we're going into 2018 with probably the best dynamics for the uranium sector we have seen since before Fukushima.
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-- Posted Monday, November 27 2017 | Digg This Article |
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