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Civil Nuclear Energy Renaissance Restart

As a general rule, the most successful man in life is the man who has the best information

Concerns about climate change, carbon footprints, energy security and the rising cost of fossil fuels spurred a revival of interest in nuclear power generation. In early 2010 we saw the start of a of a global nuclear renaissance. It was derailed by Fukushima-Daiichi.

The nuclear renaissance, and a bull market you should be aware of, have been restarted.


State of nuclear power in the USA

The USA has 104 nuclear power reactors in 31 states. Since 2001 these plants have achieved an average capacity factor of over 90 percent, generating up to 807 billion kWh per year and account for 20 percent of total electricity generated.

In 2012, U.S. suppliers and civilian owner/operators (COO) purchased 56 million pounds U3O8e.

U.S. uranium suppliers:

  • Australia/Canada - 35 percent

  • Kazakhstan, Russia and Uzbekistan - 29 percent

  • Brazil, China, Malawi, Namibia, Niger, South Africa, and Ukraine - 19 percent

Seventeen percent of the U3O8e delivered in 2012 was U.S. uranium, 83 percent was foreign supplied uranium at a weighted-average price of $54.07 per pound - $2.4 billion sent out of the country to foreigners instead of creating new high quality mining, processing and transportation jobs in the U.S.

Ten percent, or just 4.9 million pounds, of the 49 million pounds U3O8e uranium loaded into U.S. civilian nuclear power reactors during 2012 was from U.S. mined uranium, 90 percent was foreign supplied uranium.

According to the World Nuclear Association (WNA) there are plans for 13 new reactors in the U.S., three reactor units are under construction, and as many as six may come online in the next decade for a total of 10,860 MWe.

The U.S. Department of Energy projects that U.S. electricity demand will rise 24 percent by 2035. Maintaining nuclear energy's current 20 percent share of generation would require building about one reactor per year starting in 2016, or 20 to 25 new units by 2035.

Each GWe (1 megawatt = 0.001 gigawatts) of increased capacity (enough electricity to power one million homes) will require about 200 tU/yr of extra mine production and each reactor about 400-600 tU for the first fuel load.

Under the terms of the 1993 government-to-government nuclear non-proliferation agreement (Megatons to Megawatts program), the United States and Russia agreed to commercially implement a 20 year program to convert 500 metric tons of HEU (uranium 235 enriched to 90 percent) taken from Soviet era warheads, into LEU, low enriched uranium (less than 5 percent uranium 235). The HEU agreement ends late in 2013 and removes 24 million pounds of uranium supply from the U.S. market.

In 2012, the United States mined just 4.1 million pounds of uranium.


Global Demand

Current annual global uranium consumption is 190 million pounds, annual global mine production is 140 million pounds, inventory draw downs, the down-blending of weapons-grade material and the enrichment of tails material are a large portion of supply and currently make up the difference. However with inventories dwindling and the HEU agreement ending, the drying up of most non-mining uranium supply sources seems certain.

NuCap Ltd., a London-based industry consultancy, says the annual consumption of uranium will increase to 265 million pounds by 2020. According to The Australian newspaper global demand for uranium fuel is going to increase to 280 million pounds U308 by 2030.

According to the World Nuclear Association:

  • There are 439 operating nuclear power plants in the world

  • 62 new plants are currently under construction

  • 139 new plants are in the planning stage

  • 326 new plants are in the proposal stage

  • China will build 50 new reactors by 2030 - a 500 percent increase over current reactor numbers - and by 2020 be consuming one third of globally mined uranium. The country currently has 26 reactors under construction and plans to increase installed capacity to between 70 and 80 GWe by 2020 and extend its nuclear capacity to 200 GWe by 2030

  • India is planning to build 35 new reactors, a 150 percent increase

Japan restarted two of its offline reactors in 2012 and is expected to restart another half dozen before the end of 2013.


Security of Supply

"Under the megatons-to-megawatts agreement, the U.S.'s uranium purchases from Russia have consisted entirely of uranium recycled from decommissioned Soviet warheads. This agreement did serve U.S. national security interests for nuclear non-proliferation. However, that agreement expires in 2013, at which time U.S. utilities will purchase Russian uranium from the country's state-run nuclear company, Rosatom, and its affiliates. This uranium will be sourced from mines, not decommissioned warheads, and will therefore cease to serve any national security interest.

Reliance on the Russian state-run nuclear company for U.S. nuclear fuel supply poses serious challenges in terms of U.S. energy security. For instance, in the winter of 2008-09, the Russian state-run natural gas company, Gazprom, suddenly cut off all natural gas exports to Eastern Europe for more than a month, leaving millions of homes without heat or electricity in the middle of one of the harshest winters in recent history...

Given the growing demand for electricity and the number of new reactor builds planned, it is likely that the markets for uranium will only grow fiercer, placing the U.S. in a precarious position indeed if it does not develop domestic uranium deposits." Virginia Uranium Inc.


Consider...

The Somair uranium mine in Niger, owned and operated by France's Paris based Areva (a uranium miner and nuclear reactor builder), was very recently the site of a terrorist attack. Areva, the world's leading nuclear company has been working in Niger for more than 40 years and obtains more than 30 percent of its uranium from the country. Areva produced more than 4,500 tonnes of U3O8 from the country in 2012 - 3,000 tonnes coming from Somair. According to the World Nuclear Association Niger ranks fourth in the world for uranium production and accounts for 10 percent of world supply.

Cameco (TSE: CCO), is the world's largest uranium producer and is planning to increase its U.S. production in the Powder River Basin, Wyoming. Cameco president and CEO Tim Gitzel told an audience at the company's 2013 annual general meeting that utilities will need to return to the market soon to full-fill their requirements beyond 2016, this resupply happening just as the Russian Highly Enriched Uranium (HEU) agreement ends late 2013. Gitzel also said Cameco, and many other companies, have put their greenfield projects on hold and with little new supply coming on stream the future remains strong for the uranium industry.

Uranium One (TSE: UUU), is one of the world's largest publicly traded uranium producers with a primary listing on the Toronto Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. Commercial in-situ recovery (ISR) mining has been ongoing in the Powder River Basin since 1987, with production coming from Cameco Resources Inc.'s Smith Ranch-Highland mine in the southern Powder River Basin and from Uranium One's Willow Creek ISR mine also in the Powder River Basin. Uranium One's major shareholder (50 percent) is JSC Atomredmetzoloto (ARMZ) which is a wholly owned subsidiary of Rosatom, the Russian State Corporation for Nuclear Energy.

Uranerz Energy Corp. (NYSE: MKT, TSX: URZ) is a U.S. mining company operating in Wyoming's Powder River Basin where it controls a large strategic land position. URZ is expected to be in production (initial annual recovery targeted for 600,000 to 800,000 pounds after ramp-up) in 2013. Uranerz has a processing deal with Cameco and long term sales contracts for a portion of their production with Exelon (operator of the largest nuclear fleet in the U.S.) and an undisclosed U.S. utility. The Company's Nichols Ranch ISR uranium project is licensed for a capacity of two million pounds per year of uranium yellowcake.


Conclusion

There is no shortage of uranium in the ground - there is enough to meet expected demand for the foreseeable future. Unfortunately, a lot of it is just not economic to dig up at current prices. Exploration for new deposits seems to be falling drastically and with lead times approaching a decade or more, the mining industry looks like it is not going to have enough supply to meet the increased demand.

Many analysts expect demand to start exceeding supply in early 2014, if so we should soon see spot prices start moving up towards the current long term contract price of roughly $60/lb. Most uranium, 80 to 85 percent, is sold directly under long-term supply contracts between buyers and sellers, just 15-20 percent of uranium is sold at the quoted spot price.

A source of U.S. market vulnerability is the relatively low level of inventories held by buyers and sellers. Supply price shocks and market disruptions could happen if there are problems (terrorist attack, NGO interference, natural disaster) with any of the major supply sources.

In 2012, U.S. suppliers and civilian owner/operators (COO) purchased 56 million pounds U3O8e - the United States mined just 4.1 million pounds of uranium. Current annual global uranium consumption is 190 million pounds, annual global mine production is 140 million pounds, stockpiles are dwindling and the HEU agreement with Russia ends this year.

The inevitable, the unpreventable U.S. and global mined uranium shortage should be on all our radar screens. Is it on yours?

If not, it should be.

 

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