Could Spot Uranium Prices Reach $100/pound?
Energy Guru Bill Powers Forecasts Uranium Shortfall in Three Years. Bill Powers focuses on purchase opportunities inside the Canadian energy sector, mainly independent oil & gas companies and now uranium businesses. We talked with him and he thinks uranium could reach $100/pound this decade.
Interviewer: A whole lot of newsletters cover oil and gasoline, but you picked uranium, which hardly anyone was covering until recently?
Bill Powers: I feel the uranium marketplace correct now may be the world’s most unbalanced commodity industry. In the sense, the globe, via the nuclear power industry, consumes approximately 172 million pounds of uranium per year, and the planet only produces about 92 million pounds of uranium per year. The supply deficit is created up by means of above-ground inventories, which are being worked down pretty quickly. Individuals numbers had been supplied by Uranium Details Center. A great deal of my details arrives through the U.S. Department of Energy (DOE) or the Nuclear Regulatory Commission. For instance, I discovered from them that the U.S. produced, by means of the 1980s, about 43.seven million pounds of uranium. And by 2002, the U.S. only made about 2.34 million pounds of uranium.
Interviewer: In which is uranium becoming made within the United States?
Bill Powers: Wyoming. There’s also a uranium facility in Nebraska. I think you can find two in-situ leach plants in Wyoming and an additional a single in Nebraska. You will find a couple of phosphate farmers in Florida who create uranium. I believe there is really a facility in Texas that also produces uranium. For that most part, the uranium industry in New Mexico has just about been wiped out. The really low costs that we’ve seen, for about twenty many years, have pretty much wiped out the entire U.S. uranium market. To go from over 43 million pounds to less than 2.5 million pounds, it has actually only allowed the most productive, highest margin and most efficient mines within the country to continue operating in that environment.
Interviewer: So that makes the U.S. a net importer of uranium?
Bill Powers: Absolutely. According to the DOE, US imports have gone from three.6 million pounds per year in 1980 to 52.7 million pounds per year in 2002. A great deal of it comes from Canada, but a substantial amount is coming in the Russians, through a program referred to as HEU (highly enriched uranium): the megatons to megawatts program. It’s exactly where the United States Enrichment Corporation, as well as its partner in Russia, took highly enriched uranium and broke it down into lower grade uranium that could possibly be marketed to nuclear power businesses throughout North America and around the world. This has been one of the factors we’ve had reduce prices. All of this uranium has cluttered the industry the past couple of years. As well as the US Enrichment Corporation has a great deal to do with why we’ve seen low uranium costs here inside the States. I had a conversation with them in regards to the fact that since 1998, when they became a public organization (after getting a business that was owned through the U.S. government), their long-term inventories of uranium had declined. When they became a private corporation, the U.S. government gave them seven,000 tons of enriched uranium and 50 tons of highly enriched uranium. They have been promoting about 6 million pounds of uranium into the marketplace each and every year because 1998. According to my conversation with them, they have about three to four much more many years of marketing. It is simply because the US Enrichment Corporation wants to obtain out from the uranium storage business, and they want being inside the processing business.
Interviewer: How long will it be, do you consider, just before USEC is going to stop getting a factor about the promoting price strain of uranium?
Bill Powers: I would most likely say in about three years. For that uranium they are now marketing, the expense with the uranium to them was zero. This has actually made that business look really profitable. They are selling about $100 million worth of uranium each and every year, and they intend to do this at no matter what cost. This really is an very bullish scenario right now because uranium costs have touched twenty-year highs, despite the truth that USEC is dumping more than three percent with the world’s uranium consumption onto the marketplace place. When this dries up, we must see markedly higher uranium rates.
Interviewer: How high is large when you say that?
Bill Powers: I would say up to $100 per pound. Before the end of this decade, uranium will probably be $100/pound. The Russians are going to be holding back again some of their output in the megatons to megawatts project. Their (the Russian) uranium is planning to be required for internal consumption. Russia has a growing nuclear power business. They need to have uranium supplies obtainable. They’re not going to be marketing as very much as they had in earlier years. It appears it can be likely to be really important to factor in reduced Russian supplies as well as when USEC gets out of the enterprise.
Interviewer: How can a sophisticated investor benefit from uranium’s rising cost?
Bill Powers: The most leveraged investments are the Canadian juniors. I believe Cameco (NYSE: CCJ) has other businesses away from uranium exploration and manufacturing, and it is a really safe method to perform uranium. But I consider you can find far better opportunities out there. Among my favorite businesses is Strathmore Minerals (TSX-V: STM).
I really like their company model of acquiring a fantastic deal of really prospective uranium properties at bargain basement costs. They’re in a position to do this simply because, right now, uranium has gone via a twenty-year depression. The costs for some of these pretty far advanced projects are extremely cheap. I think they are properly leveraged for that. One more safe way to play uranium is Denison Mines (TSX: DEN).
They create about 1.three million pounds per year. They have properties are in McLean Lake, Saskatchewan, which is component of the Athabasca Basin. What I like about them is they are able to use their cash flow from their existing production to further expand some of their properties. With UEX Corporation (TSX: UEX), Cameco was the shareholder. UEX was founded numerous many years ago with Pioneer Minerals. Each with the companies set in properties. It’s look like they are rapidly advancing some of their properties in Athabasca. I believe they have about eleven properties they have an interest in.
Interviewer: What about other power aspects, such as crude oil, and what do you see happening there?
Bill Powers: I would say crude oil is heading a lot higher. We have reached the worldwide manufacturing peak of crude oil, or we are extremely close to it. This really is not really nicely recognized. As demand continues to rise, and planet production starts a downward slope, we’re heading for a lot increased crude oil rates. I see much greater costs later this decade, if nothing goes wrong. What I mean by that is the normal market equilibrium cost of crude oil must be $50 inside the subsequent eighteen months. And probably over $100 from the end of this decade if nothing goes dramatically wrong. That would arrive in the natural decline of existing reservoirs, limited new discoveries, and increasing demand. Nevertheless, if a country, this sort of as Saudi Arabia, have been to have a regime change…
Interviewer: Are you searching for a regime change in Saudi Arabia?
Bill Powers: Yes, there is really a body of evidence that supports this. Terrorist incidents are becoming more violent and closer together in Saudi Arabia. Proper now, we’re seeing those attacks targeted towards the oil workers. I believe it will not be too long prior to people attacks are focused more on the royal family. I believe that may be the subsequent stage in Saudi Arabia. There’s a really great opportunity, which history supports, is when you can find sudden regime changes in oil-exporting countries, oil exports from those countries drop substantially. Regardless of what were to happen, as far as the political situation, a great deal of their fields, especially Ghawar, which is the biggest oilfield within the planet – it produces between four and four.5 million barrels per day – there’s evidence that this field could decline relatively soon. Saudi-Aramco has been injecting substantial amounts of drinking water into injection wells to push the retain production flat What this has accomplished is it keeps manufacturing flat, but it is sort of an illusionary fountain of youth. In case you keep injecting h2o, the amount of h2o you produce, along using the oil, continues to rise. As the h2o cut continues to improve, the amount of oil created can fall dramatically. If that had been to happen, if Ghawar have been to go into a permanent and irreversible decline – well, it could happen relatively quickly. You will find other fields within the Middle East, this sort of as Yibal in Oman, where they had a great deal of h2o flooding and horizontal well drilling. Yibal has gone from 250,000 barrels per day within the late 1990s to about 80,000 barrels per day now. If we were to have that type of decline in Ghawar, the globe is likely to be seeing increased costs just on that. Correct now, there is not any excess oil manufacturing supply anywhere in the world. A relatively little reduction in availability of supply will lead to an exponentially increased oil cost.
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