outlook for uranium

Uranium prices set to rise by 2014, Allan Eggers
Dale Granger From PerthNow July 22, 2010 1:03PM

URANIUM industry legend Alan Eggers says mining companies should prepare for a rebound in uranium prices by 2014 when there will be a massive global demand for nuclear power.

Describing the current uranium spot price of $US42 a pound as dysfunctional, Mr Eggers, who is the executive chairman of Manhattan Corporation Ltd, said the industry should start warming up for the next boom.

We see this is an opportunity now to secure resources, build inventories and be ready to produce from 2014-2016.

It is dysfunctional what the spot price doing, but we can expect to see a rebound and a better price at about $60-70 a pound, Mr Eggers told the Australian Conference in Fremantle today.

While all uranium mining companies had suffered against a backdrop of plummeting prices over the past year, Mr Eggers echoed a recurring theme of the conference over why the industry was primed to spike.

He said former Prime Minister Kevin Rudds ill-fated Resource Super Profit Tax, replaced by Julia Gillards Mineral Resource Rent Tax were both bad for the industry and should be opposed despite concessions.

But hopefully things have stabilised and we can now look at share prices going north in the near future . It is all about energy consumption and nuclear power is a sustainable and clean form of power, Mr Eggers said.

At present there were 440 nuclear powered plants operating on the planet with another 50 under construction and 380 planned. In addition, 220 ships and submarines used nuclear power and the world counted 250 research reactors, including two in Australia.

It is a big industry and it is consuming a lot of uranium. Chinas demand for energy is insatiable and for uranium very similar, as the worlds largest consumer of energy China now exceeds the United States.

We believe prices are poised to rebound in the near future and China is going to need 44 million pounds a year of uranium by 2020 and that is going to have to come from somewhere.

India as well is in a similar situation. They have got a problem, their nuclear power production is constrained by the supply of uranium.

They have only got three of their 17 reactors working to capacity.

They are working to around 60 per cent utilisation and by 2020 they plan to produce 20,000 megawatts of power and they are going to need about 18 million pounds a year there as well.

This is on top of what is going on in the rest of the world.

Current production is around 100 million pounds and about ten per cent of that is from Olympic Dam (in South Australia), Mr Eggers said

He said current world consumption of installed capacity was about 200 million pounds, the difference covered by mixed oxide fuels and the decommissioning of nuclear weapon programmes material notably from Russia diverting supply into the Mexican grid in the United States, which consumed 50 million pounds of uranium per annum.

In the next ten years you can see that US utilities and non US utilities required about another 120 million pounds. In addition to what the shortfall is, when the current round of decommissioning of weapons is completed in Russia in 2013, there is a 220 million pound shortfall looming.

Of Australian uranium and Manhattan projects, Mr Eggers said he believed the deposits were world class.

It is time investors came back. Uranium was a worst performer in the last 12 months, when it was down 50 per cent, but this is a buying time and in two to three years you are going to reap the benefits, he said.

His views were endorsed by Treva Klingbiel, President of Trade Tech, who advise on uranium buying and pubish price reporting forecasts.

Ms Klingbiel said identified uranium projects could meet requirements for the next 15-years, but predicted production could be significantly delayed to the point of a shortage in the next five years.

She said help was not arriving from conventional sales markets, but from Asian utility companies who had a longer-term view of energy demands than their non-Asian counterparts.

She said a perfect storm had come together in 2007-08 that spiked the spot price of uranium to around $130 and it was possible to foresee a similar scenario in the future.

Nuclear power is a growth industry worldwide and looking at 439 operating (nuclear power) plants, 62 under construction, 100 planned and 270 proposed, this projected growth and installed nuclear capacity we see fuelling that next storm.

She said Chinas growth forecast surpassed that of the next four countries combined.

China and Korea were, as a result, buying equity stakes in resource companies in Australia to sustain economic momentum.

This begs the question. Where will all this uranium come from? The answer is that the industry is looking to countries that do not have sovereign risk issues.

Australia and Canada are expected to supply the bulk of supply, each doubling capacity by the year 2020, she said.

For the rest of 2010, she forecast the price of uranium hovering around the $40-45 range rising to $60 in the long-term, potentially fetching $75-$80 at the start of 2014 and continuing on an upward trajectory.