Resource World (RW) interview on June 1st with Rick Rule (RR), a resources hedge fund manager, who feels the U price will rise because of stifled mine development over years of low prices. This is interesting, because most other commentators say the U price will rise because of demand created by new reactors....
RW: I know you had hopes for a uranium recovery but this seems to be delayed. What are your thoughts on uranium and uranium stocks?
RR: I was wrong on my timing. Uranium required some global recovery and we have not seen that. The consequence of that is baseline energy demand has been very low. That lower baseline energy demand as well as marginal increases in supplies has led to lower global oil and gas prices and more competitive pressure on the uranium space.
The same factors that drive copper prices will ultimately drive uranium. From my point of view, it will not be from demand creation that drives the uranium market in the next five years. Like copper, it will be supply destruction.
We are actually seeing decent interest in uranium stocks – two in particular – NexGen Energy and Fission Uranium – but the excitement that we are seeing there is more of a discovery excitement than a general uranium excitement. If you had the same in-situ values of copper or gold that you have with NexGen or Fission, they would still be commanding attention. Those are discovery stocks, not uranium stocks.
A uranium recovery will take place the same way a copper recovery will, as a consequence of supply destruction whereby that sector’s productive capability is diminished so that when the price begins to rise, the producers won’t be able to increase supply to meet market demand. That’s why you get spikes like we saw at the beginning of the last decade when uranium prices went from US $8 to US $130 per pound. I am not predicting that kind of price spike; I am just suspecting that the price of uranium ultimately will substantially outstrip the total production costs, which exceed US $60, including cost of capital on a global basis.
(20min delay)