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“…the world's present measured resources of
uranium in the lower cost category (3.5 Mt) and used only in
conventional reactors, are enough to last for some 50 years… Further
exploration and higher prices will certainly, on the basis of
present geological knowledge, yield further resources as present
ones are used up… so a significant increase in exploration effort
could readily double the known economic resources, and a doubling of
price from present levels could be expected to create about a
tenfold increase in measured resources, over time.”
Electricity: Uranium’s Supply and Demand Problem
“We’re not going to run out of uranium, but where
will the price go to encourage new production?” asked David Miller.
“We are around over $33/pound now. Could it double again? It
wouldn’t surprise me at all.” Kevin Bambrough, a research analyst
for Sprott Asset Management, heartily agreed with Mr. Miller,
saying, “We have just started a long term uranium bull market that
will end in a ‘uranium mania’ as utilities and countries drive
uranium prices to unbelievable highs as they compete to secure
supplies."
That driving force is demand for more
electricity. Over the past 25 years, total world energy use expanded
by almost 50 percent, with stronger growth in electricity usage.
Demand for electricity is increasing far more rapidly than overall
energy use. Electricity demand has been projected to grow 2.8
percent annually through 2010, and substantially more between then
and 2020. About 2 billion people currently have no electricity
access, and with United Nations forecasts of world population growth
by 1.5 billion people in 2020, electricity demand will continue to
grow.
As an interim solution to the greenhouse gas
problem and climate changes (e.g. the worst Atlantic hurricane
season since record-keeping began), a growing number of countries
are investigating nuclear energy to solve their burden of a soaring
electrical demand. Presently, there is as much electricity generated
by nuclear power as was provided by all sources worldwide in 1960.
Nuclear power generates more than 16 percent of
the world’s electricity, nearly 24 percent of the OECD and 34
percent of the European Union’s electricity needs. In an April 2005
speech to the National Small Business Conference in Washington,
President Bush announced, “Nuclear power is now providing about 20
percent of America's electricity, with no air pollution or
greenhouse gas emissions. Nuclear power is one of the safest,
cleanest sources of power in the world, and we need more of it here
in America.”
Demand for electricity is projected to impact
other commodities as well, not just the price of uranium. In the
Energy Information Agency’s Annual Energy Outlook 2005, U.S.
electricity demand will bring about increases in natural gas
consumption. By 2025, the electric power sector will account for 31
percent of total demand for natural gas, as consumption increases
from 5.0 trillion cubic feet in 2003 to 9.4 trillion cubic feet in
2025.
China’s Demand May Be Greater Than Anticipated
Today, 441 nuclear power reactors in 31 countries
provide more than 16 percent of the world’s electricity. In 2003,
that was 2525 billion kilowatt hours. Eleven countries are
constructing thirty more reactors, mainly in China, but also in
Russia, Japan and Korea. The International Atomic Energy Agency has
projected at least 60 new power plants will be constructed over the
next 15 years. By 2020, nuclear power’s electricity production share
will increase to 17 percent.
“China is the future wild card,” said Miller.
“Their current uranium demand is miniscule. They have a small
nuclear industry. They may have three or four thousand megawatts of
capacity. Their uranium demand is only about 4 or 5 million pounds
per year. They meet that internally from their own uranium deposits.
But what they are planning for nuclear is probably the most
aggressive program in the world. I visited China in 2003 to teach
ISL (in situ leaching) uranium geology and ISL mining techniques to
a couple of institutes. At that time, they were talking about
building two new nuclear power plants per year for the next 20
years.”
But as Miller observed, they may have more
ambitious plans. He added, “Since then, I have heard of more
aggressive programs. One article I read recently was entitled, Let
1000 Reactors Bloom. That is more than 200 percent of the nuclear
reactors we now have on earth. I believe that is what the Chinese
will be doing in the next 40 – 50 years, converting nearly 100
percent of their electrical generation from nuclear power.”
Currently, China is generating less than three percent of their
electricity from nuclear energy.
Miller speculates of how this might impact the
price of uranium, “If they are building nearly three times the world
fleet in just China, then that would be about 500 million pounds of
uranium demand from China in fifty years. Other companies are
announcing new nuclear power plants.” What does that mean for the
price of uranium? Miller concluded, “So, the demand for uranium is
going up. I think the growth in demand will be more rapid than we
realize.”
Uranium Mining: A Slow Process
David Miller, who was previously interviewed by
StockInterview.com in June 2004 (view article), reflected on last
year’s forecast, “I thought $30/pound was sufficiently high to
encourage enough new production around the world.” But there are
major issues with supplying the increasing appetite of the
burgeoning nuclear power industry. Miller warned, “The problem with
encouraging new production is you don’t turn these things on and
off. The only uranium, coming onto the market in addition to what’s
already planned right now, will come from the already-discovered
deposits.”
Two years from now, Miller thinks the spot price
of uranium could double again. “There are going to be a lot of
people trying to put uranium mines into production, but it is not an
easy process.” Permitting requirements in countries where most
uranium is mined are roughly comparable. “If you haven’t done any
work, after a discovery, it still will take about four to six years
to mine in any of those areas.”
In early 2004, there were probably less than
twenty uranium producers and exploration companies. Since then, the
number of uranium exploration companies has jumped to more than 200.
Miller warns investors that it could take up to 12 years for a grass
roots project to begin mining yellowcake. Miller explained,
“Starting, finding, permitting and mining a project is probably
going to take a minimum of 12 to 20 years. From the start of the
exploration program to defining the ore body, after you make a
discovery, to starting the background and permitting process, to
development and then finally mining – it’s going to take a long
time.”
Through 2005, many uranium exploration companies
announced new projects throughout Canada and the United States.
Miller did not see how their efforts would immediately alleviate the
uranium supply crunch, “If you are talking about any of those, such
as in Labrador or the Yukon or in the basins outside the Athabasca
Basin, or even within the Basin, for those that are just now doing
their first exploration, you are talking the year 2020 before those
could come online and supply uranium to the world market.”
But, what about the world’s richest
concentrations of uranium in Canada’s Athabasca Basin? Will they
help stem the rising uranium price? In a nutshell, Miller says no.
He explained, “The next one to come online is Cigar Lake, but it was
discovered over 20 years ago. Cigar Lake may come online in 2007 or
2008. There is another one called Shea Creek, which was discovered
by Cogema more than a dozen years ago. They are having some very
good results on that.” Could they start the permitting process on
that one in the near future? “Absolutely,” Miller responded. “But
you are talking about 8-10 years before that one could come online.
It might be close to 2015 before it could bring any uranium to the
world market.”
The future largest producing uranium mine in the
world is likely to be Olympic Dam in Australia. It’s basically a
copper mine with uranium grades. On October 27th Hong Kong-based
institutional advisor Marc Faber, and author The Gloom, Boom and
Doom Report, told Dow Jones newswire that he thought copper prices
would fall by as much as 40 percent. (Note: Marc Faber also said,
“I’d be a physical buyer of uranium.”) “What happens when copper is
$0.50/pound? What will be their cost of producing that uranium?”
asked Dave Miller. “Olympic Dam is low grade uranium, less than 0.05
percent U308. Their cost to operate the uranium portion of that will
go up, if copper prices go down. It would make their cost higher,
and they would be less inclined to sell it at a low price.”
Where else do utilities turn for their growing
uranium needs? There are big known deposits in Australia, and one
that has hundreds of millions of pounds of uranium in it. But, it
happens to be adjacent to, and possibly partly in, one of
Australia’s national parks. In other words, utilities are likely to
be paying more for their uranium as this decade progresses.
David Miller argues that some of that uranium
production is likely to come from the smaller, but well-capitalized,
companies, such as Strathmore Minerals. “Our strategy from day one,
and we haven’t veered from this at all, has been to acquire as many
known uranium deposits as we possibly could,” explained Miller. “We
started early in this uranium cycle in 2003. We were out there
before 95 percent of these other uranium companies even thought of
starting uranium companies. We were able to pick up some very good
deposits in New Mexico and Wyoming. These are known, drilled-out
uranium deposits in the country that’s produced as much as uranium
anywhere else on earth. We’ve taken all that exploration
information, where they discovered these old deposits, and have
acquired a number of those old deposits. Now, we have opened a
permitting office in New Mexico and starting the permitting process
to put those into production, somewhere down the road. We don’t know
if we can do it in four years or six years. It’s a long process and
all kinds of studies must be done to get these fully permitted and
into production.”
But there is a second part to the Strathmore
Minerals strategy. Miller announced, “Don’t ignore the richest
uranium province on earth, which is the Athabasca Basin in Canada.
Strathmore is the Number One landholder in the Athabasca Basin.,
even larger than Cameco. We control approximately 3 million acres in
Canada, and nearly all of that is in the Athabasca Basin. We have
dozen different individual projects in the Basin. We are starting
the exploration process on all of those. As I said earlier,
exploration takes a long time. We have not made any discoveries yet,
and it may be three to five years before we make a discovery.”
The case with Cameco (NYSE: CCJ), the blue chip
publicly traded uranium producer, may also help fuel uranium prices
rally to higher levels. They have forward sold their production.
Added Miller, “I would bet their average sales price, under contract
right now, of the 20+ million pounds they deliver every year is
somewhere in the low teens – maybe $13/pound plus/minus $1-2. As
these contracts mature, and bring on new contracts, that price is
going to keep going up, but lag the market. They should keep going
up for the next five years.”
And that should summarize why uranium prices are
unlikely to suffer a down cycle over the next several years.
The Case for Nuclear Energy
As electricity demand grows by leaps and bounds
during the 21st century, many of the world’s governments are
seriously considering nuclear energy as a safer alternative to
coal-fired plants. As many study the safety issues of
nuclear-powered electricity, they tend to conclude that nuclear
energy may very well provide a healthier, as well as a less
expensive, alternative to present power generation methods.
Miller pointed out, “In the 1970s, when the
anti-nuclear movement was very strong, the U.S. was then mining and
burning 600 million tons of coal each year. And now, thirty years
later, because the anti-nuclear industry was successful, we are
burning 1 billion tons of coal per year, a 50 percent increase in
the amount of coal we burn in this country.
According to the Environmental Protection Agency,
U.S. air pollution in 1999, as a result of energy from coal, emitted
more than 13 million tons of sulfur oxides and nearly 5.5 million
tons of nitrous oxides. In a Harvard School of Public Health study,
as many as 70,000 Americans are dying each year as a result of air
pollution. From sulfur dioxide alone, Harvard estimated that 2400
Americans die for every million tons of sulfur dioxide emitted, or
more than 30,000 American deaths annually.
But, air pollution is far worse elsewhere. “The
pollution levels in China – from Shanghai to Beijing – are
shocking,” said Miller. “Emphysema kills 5,000 people per year in
the coal mines. They need nuclear power, probably more than any area
on earth, to clean up their air.”
About David Miller: David Miller, P. Geol.
President & COO, Strathmore Minerals Corp.
David worked for over 20 years with Pathfinder
Mines Corporation/Cogema, the second largest producer of uranium in
the world, the last 4 years as its chief geologist for in-situ
operations in the US. Mr. Miller has over 25 years of experience in
the exploration and acquisition of uranium properties. He has also
consulted in uranium exploration, mining, and "in-situ" recovery for
the International Atomic Energy Agency (IAEA) in Vienna. In
association with the IAEA, David also taught uranium geology,
exploration and ISL mining practices at the Beijing Research
Institute of Uranium Geology and Mining. Mr. Miller is also an
elected member of the Wyoming Legislature. His committee assignments
include the Minerals and the Energy Council. Mr. Miller has been the
key architect behind the Strathmore Mineral Corp's property
acquisition strategy in the U.S. in identifying drilled out in-situ
leach recoverable uranium properties in Wyoming and New Mexico.
November 16, 2005 By James Finch
StockInterview.com
James Finch contributes to StockInterview.com on
a regular basis, which is found at
http://www.stockinterview.com/
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The
Uranium Bull Market Keeps Getting More Bullish