We have no crystal ball to predict the future of uranium prices. And, in fact, prices have declined from approx. $75/lb. to the current range of $40/lb. $43/lb. within the past two years or so, in the aftermath of a uranium price boom that took this commodity to highs of over $135/lb. However, as has often been said in the world of commodities, the cure for low prices is low prices. And, with the global costs of uranium extraction now well exceeding the spot uranium price and mine shut-downs further constricting supply even as the U.S. and other nations are veering sharply toward a rapid expansion of nuclear plant-powered electricity generation many analysts today see an inevitable coming strong resurgence in uranium prices and a significant renewed boom in the uranium sector. We have even heard comment about uranium as "the next gold," reminding us gold hit a low of approx. $300/oz. a decade ago perhaps somewhat comparable to today's $40/lb. uranium price before surging to today's towering price levels.
Consider these facts:
U.S. government commits billions for nuclear power expansion: Consistent with President Obama's recent policy endorsement supporting aggressive expansion of nuclear plant generating capacity for electrical power, U.S. authorities have activated a loan-guarantee program for nuclear plants and proposed a figure of up to $55-billion in the 2011 federal budget.
Right now, the U.S. has 104 operating nuclear plants and annual uranium consumption for these is more than 51-million pounds, while annual U.S. uranium production is only 3.9 million pounds. Since uranium is a strategic fuel, much of the U.S. supply currently originates in such nations as Russia and Kazakhstan.
Moreover, available global uranium supply is anticipated to be in much greater competitive demand from other nations in east and south Asia, and especially China and Korea where 50% of all new reactors in the world are currently under construction. In Asia, there are currently 112 nuclear power reactors in operation, with 37 now also under construction and firm plans to build an additional 84 and many more are proposed. By 2020, China plans a six-fold increase in nuclear capacity to at least 60 gigawatts of electric energy, increasing to 200 gigawatts by 2030.
Considering that it takes roughly 500,000 pounds of uranium to keep a 1 gigawatt nuclear reactor fueled for a year, and a new reactor requires up to 1.5-million pounds of uranium at start-up, the additional uranium demand from new reactors looks to be far greater than continuing demand for plants already in operation. The Nuclear Energy Agency has predicted that between 2030 and 2050 the world will need between 23 and 54 new nuclear reactors per year to replace decommissioned plants and increase power production. The NEA has forecast a number of reactors worldwide will grow to between 600 and 1,400 by 2050, from 430 today. That represents an investment of between $680-billion and $3.9-trillion, or roughly $4-billion per reactor.
Uranium supply crunch looms. Two major factors are contributing to a uranium supply squeeze. The first of these is the increased shut-down of uranium production facilities that are uneconomic at current prices, the second is a declining supply of uranium for reactor fuel from the decommissioning and conversion of uranium and nuclear warheads under existing arms-reduction treaties. Supply interruptions from mines, like Cameco's flooded Cigar Lake Mine in the Athabasca Basin, exacerbate this situation. While Kazakhstan uranium production has temporarily depressed global uranium prices because of that nation's sell-at-any-cost policy, uranium industry leaders uniformly point to a fundamental shortage of supply to meet long-term uranium contract requirements.
Several North American-based uranium miners are already shutting down their higher-cost underground mines and mothballing them, and it's estimated that the production costs of up to approximately one-third of future supply is now at out-of-the-money prices. As an example, Paladin Energy, one of the larger uranium producers, recently reported that their production costs at the major Kayelekera project in Malawi now stand at $71/lb., well north of the current spot price of uranium. So it's no surprise that analysts are nearly unanimous in predicting that the current price is unsustainable and that pressure on uranium prices could start making an impact by or before the end of this year. The view is largely that, even despite renegade production by Kazakhstan, the current low price levels are plainly unsustainable."
PEN Price at posting:
3.8¢ Sentiment: None Disclosure: Held
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