europe to develop domestic uranium resources

Source: Tom Armistead of The Mining Report (5/6/14)

The Mining Report: Malcolm, uranium's spot price is at a 52-week low. What is your forecast for the uranium price moving forward?

Malcolm Shaw: The spot price is still depressed from overhang in the spot market that stemmed from the Japanese reactor shutdown in 2011. Japan was widely expected to begin reactor restarts this summer, but it appears that may be pushed back to early fall. It should be the starting pistol for a move in the spot price. I wouldn't be surprised to see the spot price recover, maybe to the $40–45/pound ($40–45/lb) range, by the end of the year. But it's really going to depend on the pace of those Japanese reactor restarts.

TMR: Analysts keep saying that we are looking at a uranium supply deficit and rising prices by 2018. Why isn't the market responding to these threats?

MS: The uranium market is a little different than a market like copper or gold or oil. Spot prices are around $33/lb and term prices are around $47–50/lb right now. Spot's really only relevant if you're looking to secure supply for very near-term delivery, whereas term is what an end-user would expect to pay for guaranteed delivery in the future, some years down the road. In the near term, and maybe even the medium term, there's no shortage of uranium out there. But when you consider the new reactors coming online in the coming years, the supply deficit is staring us right in the face. The number of new reactor builds underway in Asia is significant, and when you look at the growth of electricity demand and the concurrent decline in air quality in a country like China, it's no mystery why nuclear has to become a larger part of Asia's energy mix.

Spot prices are generally important for market sentiment, which ultimately correlates with capital inflows and investment in the sector. Cameco Corp. is the best market barometer that I can think of for sentiment in the uranium sector. It's been trading fairly well, up about 50% in the last six months, though it's been a little soft lately. I can't say when the market will respond, but I really do think it's a "when" not an "if." At the current spot and term prices, new production would be very difficult to finance.

TMR: How will the isolation of Russia and the nuclear reactor restarts in Japan affect the uranium as well as the oil and natural gas spaces?

MS: Russia is a juggernaut in the uranium sector. It has been one of the main suppliers for the U.S. reactor fleet for about 20 years now under the Megatons to Megawatts program. That program is over now. There are transitional supply agreements in place to meet demands of U.S. reactors in the coming years. To me, that seems like a suboptimal situation from a U.S. perspective. I think it should encourage development of domestic uranium resources.

Russia is also jockeying with Saudi Arabia for the position of largest oil producer in the world and is critical to the gas supply of Europe. To sum it up, Russia is an energy powerhouse, but there are alternatives. The U.S. is becoming increasingly less dependent on foreign oil, and I think we'll probably see the U.S. become a real exporter of natural gas in the coming years. Gas prices are much lower in North America than other markets, like Asia and Europe, where they can be twice as high or higher. It's not hard to imagine that liquefied natural gas (LNG) projects will start to take advantage of that arbitrage.

Pretty much any time a foreign dependence on one commodity or another is highlighted as a result of geopolitics, as we're seeing with Russia right now, the market tends to react to decrease that dependence. It should have regulators in Europe looking to increase LNG import capacity and should also drive them to more aggressively pursue domestic gas sources. North Africa could also see some increased interest from energy investors as a lot of European gas comes from North Africa.