Trade Balance Russia
Explosion In Nuclear Energy Demand Coming
Summary: Sprott Asset Management uranium expert Kevin Bambrough talked with us about the “second leg” from the current uranium bull market. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.” He said several price projections may possibly be inaccurate because “people are underestimating future demand.”
StockInterview: Price forecasts on spot uranium are widening. Some insiders have predicted uranium costs might drop back to the $30/pound range; others, such as yourself, continue to suggest $50/pound or higher. Any comments for the forecasts others are making?
Kevin Bambrough:
There are many people forecasting uranium prices now. It’s important to take into account their track record of forecasting costs. Look at the contracts that are already written by many businesses in the business, over the last number of a long time. Anyone who had ceilings, or had signed fixed-priced contracts, has been punished. Very few individuals within the business predicted what has happened. Seeking forward, I think that in our view, the cost of production of current producers isn’t going to be as relevant as it has been within the past. It will be the much more marginal, a lot higher cost producers who will probably be setting the price.
StockInterview: Isn’t there a sense of false optimism that “projects in the pipeline” will ensure an ongoing stream of uranium oxide for the nuclear fuel cycle?
Kevin Bambrough:
There are plenty of people seeking at the supply situation going forward whilst underestimating future demand. They are very optimistic that mining projects are going to go as planned. We had recent news that Cigar Lake had a problem. There was a flood the. There’s a couple million pounds shortfall to most people’s models for at least two years. All because of one mine’s six month delay.
StockInterview: Would that have the kind of impact the McArthur flooding (Athabasca Basin, Cameco) had about the spot uranium price a few years ago?
Kevin Bambrough:
I think it could. It was forecast to go up to 18 million pounds of production. That would have been ten percent from the world’s current consumption. Cigar Lake would must ramp up over a three 12 months period, once it gets started. Now, there is really a six month delay. What if it’s delayed a 12 months? That really changes the production profile for the next decade. There are several projects that could see delays. The mining enterprise is often full of delays. Remember that when we bring on new nuclear plants, they take on average about 1.6 million lbs when commissioning. What will happen, if in a decade, we bring on just 10 or 20 reactors each and every yr? That’s another 16 to 30 million pounds per 12 months of demand just because of the start up.
StockInterview: Does this mean the current uranium bull market even now has powerful legs?
Kevin Bambrough:
I think we’re entering the second leg of the bull marketplace here. It’s going to move away from a supply shortage story, in which we focus about the fact that we only get about 60 percent with the current consumption from mines, whilst the inventories are being worked off. Now, we’re moving into a situation exactly where we’re seeing an explosion in demand development. Just a couple of a long time ago when we first started investing in uranium, we could see probably about a dozen nuclear facilities being planned for construction throughout the planet. Now we’ve got well over 100 being planned. It seems there are new additions and talk of more additions every day.
StockInterview: How you envision this nuclear buildup rolling out?
Kevin Bambrough:
I don’t believe it’s unreasonable to believe, looking ten to twenty many years out, there are going to be lots of countries that will probably be trying to obtain within the position that France is in, with a much higher percentage of their power coming from nuclear generation. We could see a move to exactly where maybe 50 percent of global energy production or more could eventually be supplied by nuclear. There is nothing else that can actually step up and fill the void and take care of this problem that we’re having. France produces 78 percent of their electricity from nuclear. Why isn’t that reasonable for others? Look out a decade or two, and it doesn’t appear like we’re going to have the oil and the gas in order to handle our needs. Obviously we can do much more with coal, but if we’re going to keep using coal we’ve got to put in place technology to take care of the carbon dioxide sequestration. Should you want to have a stable, secure supply of electricity, it seems that you’re going to must go with much more nuclear or eventually with these new coal technologies. I think there is going to have to be a balance of both, because the oil and gas just isn’t going to be there.
StockInterview: What do you consider could be the catalyst for this anticipated development in nuclear energy demand?
Kevin Bambrough:
The most interesting point could be the fact that some environmentalists are leading the charge to go much more nuclear. It’s because they realize nuclear energy may be the only practical alternative and because with the situation with the carbon dioxide (CO2) levels. There have been some recent reports about CO2 levels reaching 381 parts per billion, just spiking out with the range that has kept the world in a relatively stabile environment for the last 400,000 many years. In case you look at the work of individuals like James Hanson, the correlation between CO2 levels and temperature is undeniable. Basically, mankind has increased the CO2 levels beyond a level that hasn’t been seen in over a million a long time. We are just starting to see the weather impacts. There are problems with droughts across the world too as elevated hurricane activity. Going nuclear on a mass scale is starting to grow to be recognized as a single with the only ways to possess a actual impact. I consider what we’re going to see is an unprecedented build out in nuclear capacity throughout the globe inside the coming years and decades. I’d equate this to what happened when we went from using oil for just lamps and home heating to using it as a transportation fuel. What’s going to happen with the folks who have the higher quality uranium reserves and lower cost production? They are going to be able to reap massive profits over the coming decades.
StockInterview: Searching ahead, do you consider we’ll see more deals between a tiny uranium producer, such as Uranium Resources (OTC BB: URRE) and the Japanese multi-national conglomerate, Itochu Corporation?
Kevin Bambrough:
I’ve no doubt that it’s going to continue to happen. More importantly, I’ve heard that some with the major builders of nuclear facilities around the planet, firms such as Areva are really concerned concerning the availability of supply going forward. When these firms are talking to countries and utilities that potentially could contract to build nuclear facilities, they’re basically being told that buyers want uranium supply assurances, or they aren’t going to give an order to buy a nuclear facility. I’ve heard they may be searching to do joint ventures or at least contract with emerging producers to try to get future supply. Then, they is going to be capable sell their nuclear technology to countries and ensure supply.
StockInterview: Will the Chinese be satisfied with the uranium they plan to buy from Australia, or will they have to tap into uranium production from another or other countries?
Kevin Bambrough:
I consider that the Chinese will probably look elsewhere as well. Countries have strategic oil reserves. Why shouldn’t they have strategic uranium reserves to supply their nuclear reactors? It makes sense to have a good stockpile of uranium considering the relative cost of nuclear power versus anything else. I don’t think that the nuclear power industry ought to operate on a just in time basis, considering the costs and the hazards of creating sure you can secure supply. Don’t get me wrong. There is plenty of uranium inside the planet, but we’re just going to have to pay up for it. I believe we’re going to consume great deal a lot more than what we’re consuming nowadays – a decade or two out. The planet is waking up for the reality of peak oil production, and how it is going to affect all aspects of energy production.
StockInterview: How a lot of a factor will Russia play inside the nuclear build up?
Kevin Bambrough:
Searching at some with the latest statements created by Russian officials, it’s completely clear to me that we’ve been correct in what we’ve been thinking for a long time: the HEU agreement (to deliver highly enriched uranium and have it blended down) is probably not going to be renewed. The Russians are planning to make nuclear technology a key export for them, actually like a value added product to go with uranium production. They desire to be able to offer a complete solution, not just uranium, but the actual building and technology around the nuclear facilities themselves. They will also have growing uranium demands domestically and have voiced concern about being able to meet their own needs beyond 2015.
StockInterview: But nuclear energy critics claim all of these power plants won’t secure financing and most plans are just pipe dreams never to be built.
Kevin Bambrough:
Two many years ago, the critics said there would never be any much more nuclear plants built in the U.S. People employed to say nuclear was over for Germany, and that many countries would exit nuclear power. Now we’re seeing the exact opposite. We’re seeing proposals being done, incentives put in place, and a multitude of projects moving ahead. If what the leading scientists from NASA, the NOAA and from many organizations around the globe are saying about global warming, and the acceleration we’ve recently seen continues, folks are going to be begging to have a lot more nuclear facilities and cut CO2 emissions. The environmentalists is going to be leading the charge.
StockInterview: How long will it take prior to the proposed nuclear build up impacts the uranium mining businesses?
Kevin Bambrough:
The actual build of all this takes time. I consider the improve within the positive perception, with the nuclear business is going to continue to accelerate. All demand for uranium can come from just the planning stage for nuclear power plants, as companies look forward and try to contract future supply. Ultimately, that’s what will keep driving the uranium price higher.
StockInterview: How seriously could be the nuclear industry taking the global build up?
Kevin Bambrough:
I believe the industry is starting to take it extremely seriously. That’s why the uranium price keeps pushing higher. Individuals are going around trying to contract for uranium, and they may be finding it much more difficult. Individuals are also starting to realize that as you’ve problems, such since the McArthur River flooding, which got the uranium bull market jump started, and now a problem at Cigar Lake, you really must have a good build up of inventory in order to protect yourself in this environment. Especially when the relative cost of having to switch off a nuclear facility to go to something else in a pinch is multiples higher.
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