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The Bullish Case For Uranium

Higher prices to come?

Fortnightly Magazine - December 2010

that information is vital.

Uranium exploration comprises many different activities, technologies and procedures, and the developments in mining over the last generation leave a great many areas of uncertainty. Moreover, the speed of research and exploration will be a function of price; the higher the price, the more spending will happen, thereby accelerating the process. 7

That said, market analysts have made some forecasts about supply, demand and future prices that appear to hold water. For example, RBC Capital Markets reports: “We foresee uranium demand growing by an average of 4.2 percent per year during the next 20 years, in line with our previous forecast, but weighted to the 2018-2025 timeframe.”

At the same time the same analysts say, “We forecast the supply of uranium to grow by an average of 3.9 percent annually until 2015, but falling thereafter as reserves are exhausted. The uranium bull market of 2006 and 2007 stimulated the development of new supply, but we do not think it is enough. In our opinion, the prevailing uranium price is too low to stimulate sufficient supply to cover future reactor requirements… [T]here is not enough uranium production, either current or planned, to satisfy reactor needs, initial core requirements and inventories.” 8

What’s driving this assessment? Four factors enter into it. First, the Cold War stockpiles are continuing to be drawn down. Second, China is embarking on a massive nuclear plant drive, with India moving in the same direction. Also, American politics have changed so that nuclear is enjoying greater support. And finally, financial markets are taking notice of uranium as a commodity.

Thus far, China’s economic development has been fueled largely by coal and oil. However, China is building 24 nuclear reactors right now and plans to have 200 GW of installed nuclear capacity by 2030. 9 Furthermore, China recently announced an increase to the 2020 nuclear capacity target from 70 GW to 112 GW. Clearly, the ramp-up is accelerating and all expectations point to upward revisions of future growth targets beyond 2020. The reason for this nuclear drive is quite simple. Coal can’t keep pace with China’s growth and the energy demands of its growing middle class. This summer the Tibet-Beijing Expressway experienced traffic jams that lasted days; many of the stuck vehicles were hauling coal from the Himalayas to the coast.

While it hasn’t yet announced a program as ambitious as China’s, India’s 1.1 billion people also are consuming more energy. Nuclear power supplied 2.5 percent of India’s electricity in 2007, and this will increase as imported uranium becomes available and new plants come on line. The target is a 25 percent nuclear contribution by 2030, nearly 10 times the 2002 percentage. 10

Another significant factor in the increase in demand is the likelihood of new U.S. plants being built in the next decade or two, stemming from a shift in the political landscape. From the 1970s through the 1990s, the Democratic Party was strongly anti-nuclear. However, global warming has caused a re-assessment of nuclear power’s value, given that it produces no greenhouse gases. 11

The Obama