Uranium Supply

Uranium Supply: The Other Yellow Metal
A Daily Reckoning Whitepaper Report
By Doug Casey – The Daily Reckoning

The Daily Reckoning PRESENTS: Nuclear energy production is not the environmental hazard you might have thought…and it’s cheap. In fact, long term, it seems like the only answer to the looming energy crisis. Here’s how to profit…

Over the next decade or two, energy prices are going to reach shocking levels, and the price of uranium, inextricably tied to energy, is headed up as well. I first recommended uranium companies in October 1998, when the metal was trading hands at a paltry $9.50 per pound. Since then, U3O8 has risen to $18, and I believe, due to growing global energy demand coupled with the relative costs of alternative fuel sources, it’s going much, much higher.

Uranium Supply: Growing Energy Demand

Global electricity use is projected to increase by 66%, from 13 trillion kilowatt-hours in 1999 to 22 trillion kilowatt-hours in 2020. In North America, the growing demand for power has reached the point where the grid is increasingly vulnerable to massive failures, like that of last summer, when the lights went out on 50 million people.

To meet this demand, energy has to come from somewhere, and nuclear power is the only sensible choice. This conclusion is not mine alone…as I write, there are 30 new reactors in various stages of construction around the world. China alone is planning at least one new reactor per year for the foreseeable future. Even in the United States, despite all the hand-wringing about nuclear power, the share of electricity generated by the nuclear has risen from just 4.5% in 1973 to over 20% today…making it the second most frequently used fuel source for producing electricity (after coal).

Uranium Supply: Pricey Oil

Oil currently accounts for 40% of the world’s energy consumption, and world oil consumption is projected to increase 2.3% per year for the next 16 years – driving the demand to 120 million barrels per day in 2020. Against that consumption, the world is currently producing on the order of 77.5 million barrels a day, but the threats to supplies coming out of the Middle East, Nigeria, Venezuela and elsewhere (for instance, the Strait of Malacca) are growing…and, due to reserve depletion, are only going to get more difficult and costly to recover. As I write, oil is nearing $50 per barrel. While that price will certainly ebb – maybe all the way back into the $30 per barrel range – the days of $18 a barrel are almost certainly gone for good. While higher oil prices carry many negative consequences – on household spending, inflation and corporate profits, to name a few – for the sake of this discussion, what’s important is that pricey oil makes alternative forms of energy more appealing.

Natural gas? There is a general preference for natural gas over oil and coal for power generation, because it is clean and gas-burning plants can be built relatively cheaply and quickly. In fact, it is the fastest-growing component of energy consumption, surpassing coal for the first time in 1999. Energy mavens say that by 2020, it will exceed coal use by 44%, but I doubt it. Gas will price itself out of the market before that happens.

Coal and nuclear are the only feasible sources of mass energy with anything like current technology. There are many hundreds of years of cheap coal available, but the stuff is an environmental nightmare compared to nuclear (despite what the scaremongers would have you believe). Other commonly discussed energy alternatives face distinct disadvantages, or are years from mass commercial viability or aren’t mass power solutions at all.

The looming energy shortage has even become clear, however belatedly, to the U.S. Department of Energy, which recently announced incentives to encourage U.S. power companies to apply for licenses to build new nuclear plants (the first in 25 years). In addition, the DOE is even considering building a plant of its own. This is a big change from just a few years ago, when the talk was of literally closing down the industry, not only here, but worldwide.

Uranium Supply: Uranium Demand

How great is the demand for uranium likely to get? Saskatoon-based Cameco, the world’s largest uranium miner, estimates that even without the potential for added demand due to rising oil and natural gas prices, global uranium demand should average 194 million pounds per year from 2003 to 2012, with the United States using 40 million pounds of that amount from 2006 onward.

What about supply? Uranium is more abundant than tin and 10 times more abundant than silver. Yet a chronic supply/demand imbalance has developed in yellowcake, as U3O8 is known. The best evidence of this is that the industry has been living on inventory since 1985.

Supply is running at about 135 million pounds per year, with mines contributing only 79.2 million pounds per year. In Canada and Australia, the big dogs in uranium, few new mines have come on stream, largely as a result of recently poor prices.

Of course, if prices continue to rise, prospectors will redouble their efforts to find new deposits. But it typically takes up to 10 years from discovery to production for a well-sized mine.

The balance of the uranium needed to keep the world’s lights on today comes from aboveground supplies, like weapons conversion, MOX/breeders and utility stockpiles. However, these supplies are not growing, while demand is – rapidly.

Using the 194 million pounds per year demand forecast and subtracting roughly 50 million pounds of supply from above- ground sources results in a 144 million pound per year difference that mine production needs to meet (nearly double current output). That’s not going to happen, except at much higher uranium prices. While longer-term price forecasts are worth little – there are just too many variables – I’ll make a guess. Uranium will trade over $25 within the next 12 months and is quite capable of going to $30, $40 soon, and over $100 by the end of the decade.

Success in speculation requires a willingness to look beyond the hype and hysteria about things like nuclear power. With the exception of a small group of pathetic Luddites, no one is ready to freeze in the dark. To sustain the increases in energy demand dictated by a growing world economy, there is no question that uranium will need to play a key role. Uranium, after decades of being the unwanted stepchild of energy sources, is now likely to offer better percentage returns to speculators than oil, gas or any other energy alternative.

Regards,
Doug Casey
for The Daily Reckoning

Here are some other articles about Uranium:

A Healthy Glowby Justice Litle
“Three large-scale factors have turned the tide in favor of nuclear energy: geopolitics, global warming and developing world growth…”

Juggling Uranium by Sven Lorenz
“Even nuclear energy is dependent on natural resources – not on oil or gas, but uranium. Unlike oil and gas, uranium isfound in stable countries like Canada and Australia. Morethan 50% of the world’s uranium is produced in these twocountries.”

Make a Fortune on Russian Uranium by Doug Casey
“Our research shows that Russia contains a staggering amount of yellowcake. Although the country mined a meager 7.3 million pounds in 2005, there is much more lurking below ground.”

Stealth Uranium Investments by Doug Casey
“Uranium prices have been through the roof lately – surging 57% this year alone. And while the future of this commodity looks bright, the so-so stocks attached to this metal present a serious investment challenge.”

Here are some resources about Uranium:

Environment News ServiceThe latest environmental news, current issues, climate, water, food, forests, species, energy, education.

International Herald TribuneNews, analysis, opinion and breaking news. The world’s daily newspaper online.

Nuclear Energy Institute The policy organization of the nuclear energy and technologies industry.

Yahoo Finance Free stock quotes, up to date news, portfolio management resources, international marketdata, message boards, and mortgage rates.

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