When Uranium Outshines Gold
By JOHN LORINC
EARLIER this month, Global X Funds of New York announced plans for two exchange traded
funds one for gold stocks, the other, uranium. Initially, Bruno del Ama, its chief
executive, figured he knew which would capture the markets attention. After all, gold prices
have surged in recent months.
As it transpired, he guessed wrong. Global Xs Uranium E.T.F. with holdings in
companies like the Cameco Corporation, Paladin Energy and Uranium One was a hit as
soon as it went on sale Nov. 9, with early trading volume outpacing Global Xs gold E.T.F. by
five to one. Im in shock, to be honest, he said.
Mr. del Ama is hardly alone. Uranium industry insiders were caught off guard by a deep runup
in spot market prices, which are now about $58 a pound, up sharply from the low $40s in
the summer. We all knew it was going to happen, says Ron F. Hochstein, the president
and chief executive of the Denison Mines Corporation. We just didnt anticipate it would
happen this year.
As Adam Schatzker, an analyst with the Canadian investment bank RBC Capital Markets,
said in an equities research report published last week: It appears that the character of the
spot market has changed markedly over the past few months from one that was heavily
oversupplied with weak demand to one that has high levels of demand with very little
supply.
The price surge hints at a confluence of significant changes a perfect storm, in Mr.
Hochsteins words now sweeping through the global nuclear power industry, especially in
Asia. With China recently moving to accelerate sharply its nuclear building program by 2020
the showpiece is the 3,300-megawatt Taishan plant in Guangdong Province, due to come
online in 2013 the countrys nuclear utilities are now trying to secure fuel supplies for
years to come.
On Nov. 1, Chinas long-term planning agency announced that by 2020 it intended to raise
nuclear powers share of the countrys total energy production to 112 gigawatts, or 7 percent,
up from the previous target of 70 gigawatts. That translates into an additional 82 million
pounds of uranium, according to RBC.
Just as Global Xs uranium E.T.F. went on sale, the French nuclear giant Areva signed a 10-
year, $3.5 billion deal to supply 20,000 tons of uranium fuel to the China Guangdong Nuclear
Power Corporation. Areva is a minority partner in the Taishan plant, described as the largest
civil nuclear project ever. Cameco signed a similar deal earlier this year. The Chinese are
really showing their cards, Mr. Schatzker said.
Russia, South Korea and Pakistan are also developing reactors and preparing to stockpile
long-term inventories. The activity isnt just domestic: China is reported to be helping
Pakistan build five reactors, according to a report in The Financial Times, while South Korea
recently won a large reactor project in the United Arab Emirates.
Pointing to a 17 percent year-over-year increase in production for 2010, Camecos chief,
Jerry Grandey, said during an analysts conference call last week that the company was also
anticipating increased demand from India, which has signed nuclear cooperation
agreements with the United States and Canada in recent years.
These moves contrast sharply with the situation in North America, where many nuclear
projects are stalled because of economic uncertainty and a lack of government financing.
Still, many analysts anticipate the Asian nuclear program will drive uranium prices to $70 to
$80 a pound in the next several years a level that will set off a new wave of exploration
and mine development.
Lacking domestic uranium sources, China and companies like Paladin are also beginning to
develop uranium mines in African countries including Namibia and Niger. Mr. Hochsteins
firm, whose largest shareholder is the South Korean nuclear utility, is working on a facility in
Mongolia.
These latest developments are welcome news for uranium producers, some of which
struggled in recent years after a mid-2000s boom was followed by a price collapse that
created what Mr. Schatzker describes as a liquidation market.
Over the last decade, Kazakhstan rapidly became the worlds largest uranium producer,
overtaking Canada with vast increases in production. According to World Nuclear
Association figures, Kazakh production jumped 62 percent from 2008 to 2009. Overall global
demand remained steady, however, because the long-promised nuclear renaissance was
always just over the horizon.
In the meantime, Cameco and Energy Resources of Australia both had large mine projects
stalled because of floods. After a complicated remediation process, Camecos Cigar Lake
mine in Saskatchewan, the largest in the world, will come online in 2013.
Further complicating the picture was the fact that many nuclear utilities were acquiring fuel
on the so-called secondary market reprocessed uranium from decommissioned
warheads, uranium tailings and spent reactor fuel.
Robert Vance, an analyst for the Nuclear Energy Agency in Paris, said a third of the worlds
uranium had come from such sources, including 9,000 tons a year from Russia. He said the
Russian secondary supply stream would end in three years.
Indeed, as 2010 draws to a tumultuous close, many uranium industry insiders are thinking
ahead to the state of the market circa 2014 and beyond. As Mr. Grandey, of Cameco, said
last week, Theres a lot of uncovered need.
Mr. Vance said uranium was not especially rare, but the licensing and mine development
process could take years, especially in politically volatile countries like Niger, and required
prices to be in the high $50s.
Some industry watchers say that North American utility fuel buyers have not yet absorbed
the implication of these price trends on their own operations. Theres no real sense of crisis,
yet, says Lawrence Smith, a uranium analyst for Scotia Capital, the investment banking and
capital markets division of the Scotiabank Group. Western utilities are pretty well covered in
2011 and 2012. Further out, it becomes an issue
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