Explosion in Nuclear Energy Demand Coming
Summary: Sprott Asset Management uranium expert Kevin Bambrough talked with us about the “second leg” of the current uranium bull market. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.” He said many price projections may be inaccurate because “people are underestimating future demand.” StockInterview: Price forecasts on spot uranium are widening. Some insiders have predicted uranium prices may drop back into the $30/pound range; others, such as yourself, continue to suggest $50/pound or higher. Any comments on the forecasts others are making? Kevin Bambrough: There are many people forecasting uranium prices now.
It’s important to consider their track record of forecasting prices. Look at the contracts that have been written by many companies in the industry, over the last number of years. Anyone who had ceilings, or had signed fixed-priced contracts, has been punished. Very few people in the industry predicted what has happened. Looking forward, I think that in our view, the cost of production of current producers isn’t going to be as relevant as it has been in the past.
It will be the more marginal, much higher cost producers who will be setting the price. StockInterview: Isn’t there a sense of false optimism that “projects in the pipeline” will ensure an ongoing stream of uranium oxide for the nuclear fuel cycle? Kevin Bambrough: There are a lot of people looking at the supply situation going forward while underestimating future demand. They are very optimistic that mining projects are going to go as planned. We had recent news that Cigar Lake had a problem. There was a flood the. There’s a couple million pounds shortfall to most people’s models for at least two years. All because of one mine’s six month delay. StockInterview: Would that have the kind of impact the McArthur flooding (Athabasca Basin, Cameco) had on the spot uranium price a few years ago? Kevin Bambrough: I think it could. It was forecast to go up to 18 million pounds of production. That would have been ten percent of the world’s current consumption.
Cigar Lake would need to ramp up over a three year period, once it gets started. Now, there is a six month delay. What if it’s delayed a year? That really changes the production profile for the next decade. There are many projects that could see delays. The mining business is always full of delays. Remember that when we bring on new nuclear plants, they take on average about 1.6 million lbs when commissioning. What will happen, if in a decade, we bring on just 10 or 20 reactors each year? That’s another 16 to 30 million pounds per year of demand just because of the start up. StockInterview: Does this mean the current uranium bull market still has strong legs? Kevin Bambrough: I think we’re entering the second leg of the bull market here. It is going to move away from a supply shortage story, where we focus on the fact that we only get about 60 percent of the current consumption from mines, while the inventories are being worked off.
Now, we’re moving into a situation where we’re seeing an explosion in demand growth. Just a couple of years ago when we first started investing in uranium, we could see probably about a dozen nuclear facilities being planned for construction throughout the world. Now we’ve got well over 100 being planned. It seems there are new additions and talk of more additions every day. StockInterview: How you envision this nuclear buildup rolling out? Kevin Bambrough: I don’t think it’s unreasonable to think, looking ten to twenty years out, there are going to be a lot of countries that will be trying to get in the position that France is in, with a much higher percentage of their power coming from nuclear generation. We could see a move to where maybe 50 percent of global energy production or more could eventually be supplied by nuclear. There is nothing else that can really step up and fill the void and take care of this problem that we’re having. France produces 78 percent of their electricity from nuclear. Why isn’t that reasonable for others? Look out a decade or two, and it doesn’t appear like we’re going to have the oil and the gas in order to handle our needs. Obviously we can do more with coal, but if we’re going to keep using coal we’ve got to put in place technology to take care of the carbon dioxide sequestration.
If you want to have a stable, secure supply of electricity, it seems that you’re going to have to go with more nuclear or eventually with these new coal technologies. I think there is going to have to be a balance of both, because the oil and gas just isn’t going to be there. StockInterview: What do you think is the catalyst for this anticipated growth in nuclear energy demand? Kevin Bambrough: The most interesting thing is the fact that some environmentalists are leading the charge to go more nuclear. It’s because they realize nuclear energy is the only practical alternative and because of the situation with the carbon dioxide (CO2) levels. There have been some recent reports about CO2 levels reaching 381 parts per billion, just spiking out of the range that has kept the world in a relatively stabile environment for the last 400,000 years. If you look at the work of people like James Hanson, the correlation between CO2 levels and temperature is undeniable. Basically, mankind has increased the CO2 levels beyond a level that hasn’t been seen in over a million years. We are just starting to see the weather impacts. There are problems with droughts across the world as well as elevated hurricane activity.