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The Bullish Case For Uranium

Higher prices to come?

Fortnightly Magazine - December 2010

One of the main features of the uranium market historically has been a fairly low price. Mining and extracting companies, processors and utility operators could build their business models with a reasonable degree of confidence that prices would be in the $20 to $40 range year in and year out. However, a quantum change in the uranium market has begun, and for the foreseeable future, the prospects of rising prices will affect market participants—some to a great degree, some only marginally.

Uranium Supply

As we all learned in Economics 101, price is a function of supply and demand. An examination of these two factors in the market for uranium illustrates that the price in coming years is quite likely to rise.

Looking at potential supply in the ground, uranium is considered ubiquitous. Scientific consensus puts its natural occurrence at about 2 to 4 parts per million, making it more common than tin or silver. 1

The quality of the mines ( i.e., grade) and the geological type of formation are more of an economic issue than anything else. At $10 a pound, there are fewer profitable, quality mines than there are when uranium is priced at $45 a pound. At the same time, discovery costs stand at $4 to $5 per pound, and they are rising because the easy uranium has been found already. This will weigh on supply. 2

In the post-Cold War era, an additional source of nuclear fuel has come from the destruction of nuclear weapons. The United States and Russia in 1993 established a 20-year agreement that created the regime for beating these nuclear swords into plowshares. Highly enriched uranium (HEU) for bombs is 90 percent or so U-235. Blending that down to 5 percent to make low-enriched uranium (LEU) results in the raw material for fuel rods. Overall, the blending down of 500 tons of Russian weapons HEU will give the industry about 25,000 tons of LEU over 20 years. This is equivalent to about 225,000 tons of natural uranium, slightly less than 3 years of global uranium demand. 3

Despite this substantial quantity of fuel, the release of diluted military uranium to nuclear utilities hasn’t disrupted prices and likely won’t in the future. In fact, prices rose appreciably during the 2004 through 2007 time period, and probably would have risen more if this material hadn’t been available to the commercial nuclear fuel market . When this source runs out, tighter supply might pressure prices upward. 4

Uranium Demand

Prior to the discovery of its radioactive properties in 1896 by Antoine Becquerel, uranium’s main use was in ceramic glazes, creating a yellowish hue in glass and pottery. Following World War II, uranium had two uses, both of which relied on its fissile nature. The first, obviously, was weaponry. The second was its use in nuclear power plants, the first of which was the EBR-I experimental station near Arco,

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