China Demand for Uranium, World Growth in Electricity Demand
to Drive Uranium Price Higher.
Industry expert says all new production already factored in uranium
price “We are consuming far more uranium than we are producing
worldwide,” explained David Miller, Wyoming legislator and recently
appointed president of Strathmore Resources (TSX-V: STM; OTC:
STHJF.PK). “All the new production is already factored into the
future market for uranium. We’re underwater right now without
building one more nuclear power plant.” Nuclear reactor requirements
have far outstripped current mining production for the past two
decades. Current worldwide production is more than 80 million
pounds, but the demand for uranium, which fuels nuclear reactors,
is running an annual deficit of approximately 60 million pounds.
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, 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, 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. There is another one called Shea Creek, which was discovered
by Cogema more than a dozen years ago.” Could they start the permitting
process on that one in the near future? “Absolutely,” Miller responded.
“But 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.”
Where else do utilities turn for their growing uranium needs?
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. 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, controlling approximately
3 million acres in Canada. We have dozen different individual
projects there. We are starting the exploration process on all
of those."
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. They should keep going up for the next five 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.
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 the Author: James Finch regularly contributes
to StockInterview.com, which is found at
http://www.stockinterview.com
Source: www.isnare.com
