planets still aligned - awaiting japan, page-5

Many still continue to use the end of the Megatons to Megawatts program as a basis for a shortfall in uranium supply that will lead to a spike in the uranium price. But as I highlighted in one of my posts in Sept 2011, this is a misconception:

"Most of the articles posted on the PEN forum about the upcoming nuclear renaissance or the coming spike in the uranium price are from Share market newsletters trying to sell readers the next big thing or presentations by uranium companies trying to promote their companies to bolster their share prices.

In relation to those sharemarket newsletters, IMO it is important to remember that they were recommending uranium shares quite aggressively PRE-Fukushima so they and a lot of their readers/ subscribers are probably holding substantial paper losses at the moment so you could argue that they could be still pushing uranium stocks in the hope of recovering some losses and/ or trying to redeem themselves.

Most of these newsletters and articles on the web always refer to the ending of the megatons to megawatts (M2M) in 2013 which is expected to be the catalyst for a spike in the uranium price resulting in an opportunity of a lifetime for anyone willing to buy in to uranium stocks now.

However, if you dig a little deeper, you will find that the main reason the M2M is not going to be renewed/ continued by the Russians is not because they have run out of nuclear warheads to dismantle and downblend, it is because the M2M agreement was entered into during the fall of the Soviet Union and the terms of the M2M are not very favourable to the Russians at all. USEC has in fact in March 2011 entered into a new agreement with the Russians for the continued supply of Low Enriched Uranium (LEU) immediately after the the M2M ends for 50% of what the M2M used to provide with the option of increasing it to 100% if both parties are in agreement.

An extract from the following article shows this:

NUCLEAR WARHEADS CONVERTED TO FUEL
http://english.ruvr.ru/2011/09/04/55637055.html

HEU-LEU was deemed a project of significance for the ailing post-Soviet Russian economy in the 1990s. But so much has changed since. Nuclear expert Bulat Nigmatulin gives his view:

"When the agreement was negotiated, Russia was financially strapped. Back then, it made sense. But today, we have no crisis and we are bathing in dollars. The price of fuel is tied to hydrocarbons. We were selling uranium when oil prices were $10-30 dollars and now one barrel costs more than $100."

The contract expires in 2013, but its extension does not benefit Russia unless more suitable terms are considered. At present, half of all nuclear reactors in the United States are powered by Russian fuel. USEC is keen to continue cooperation. This March, it signed a 10-year contract with Russia's Techsnabexport company. The $3-billion deal offers Russia more advantages, but the main thing is that the fuel will no longer come from nuclear warheads. Bulat Nigmatulin:

"This is profitable. We have many enrichment facilities, nearly 50% of all facilities in the world. If uranium is supplied to us from other countries, we enrich it and sell it. We do this using our technology. The price is based on modern production costs, which makes it cost-effective."

Russia is also planning to sell uranium directly to utilities to secure higher prices after the end of the Megatons to Megawatts program.

The other fact that most articles fail to clarify is the fact that the M2M is not the only available source of uranium apart from mined uranium. Other secondary sources include Civil stockpiles, Recycled uranium and plutonium and Re-enrichment of depleted uranium. While some newsletters will try to make you believe that these sources of uranium are running out, that is not the case at all according to the World Nuclear Association (http://www.world-nuclear.org/info/inf75.html). These other secondary sources of uranium are in fact expected to increase and can be enriched to make nuclear fuel.

Furthermore, there have been three major initiatives recently to set up international reserves of enriched fuel to ensure the security of supply of nuclear fuel and to prevent any supply disruptions. (http://www.world-nuclear.org/info/inf75.html)

In Nov 2009 the International Atomic Energy Agency (IAEA) approved a Russian proposal to create an international fuel bank or guaranteed reserve of low -enriched uranium.

In Dec 2010, the IAEA established another guaranteed reserve of low-enriched uranium called the IAEA LEU Bank.

In August 2011, the US Department of Energy announced a program called the American Assured Fuel Supply (AFS) to prevent any Nuclear Fuel supply disruptions.

All the programs above, increasing secondary stockpiles and expected increases in mine production from upcoming new mines like Cigar Lake, Rossing South, Olympic Dam etc and a fall in demand post Fukushima, could mean that there will be enough supply to meet demand for some time yet.

So when is demand expected to exceed supply? If you disregard the potentially biased newsletters and optimistic uranium company presentations and have a look instead at what the forecasts are from the World Nuclear Association (WNA), Nuclear Energy Agency (NEA), International Atomic Energy Agency (IAEA), you will be a bit surprised with their predictions. These organisations are only expecting demand to start exceeding supply after 2022. These forecasts were done post Fukushima in May 2011 and can be found at http://www.nma.org/pdf/urw_2011/060111_pool.pdf (Thanks Yuro for bringing it to my attention).

The conclusion from the presentation (Presented by the International Nuclear Inc. for the NRC) above states the following:
Demand - stagnating
Supply - abundant resources, increasing competition
Prices - weakening in near term
Companies - Difficulties raising financing
Fukushima Effect - Revitalisation of NGOs throughout the world and a 2 to 3 year setback for the nuclear industry.

I was very surprised as well when I saw their predictions as I always thought that post-Fukushima, the demand/ supply would happen around 2015/2016. Definitely something to look into further IMO.

The above are only forecasts so I am well aware that they may turn out to be incorrect but I do believe that it is always important to look at predictions from all sources not just the positive/ optimistic ones."

Now 2.5 years after my post above, it appears my research was correct as the Megatons to Megawatts program officially ended in November 2013 with no impact whatsoever on uranium prices.

Nevertheless, uranium spot prices at $35/lb, well below the cost to produce uranium for most mines, are IMO unsustainable and it will eventually have to rise to bring the uranium price back into equilibrium. Will be interesting to see if a restart of Japanese reactors will be enough of a catalyst to turn uranium prices around.

I personally believe that uranium prices and uranium company's have hit the bottom and are unlikely to fall further (barring another nuclear disaster or stock market collapse). Just need to be selective on which uranium companies one chooses to invest in.

All IMO