There are 436 nuclear power reactors operating in 30 countries around the world today, providing approximately 15% of the world’s electricity, and according to the World Nuclear Association, another 50 power reactors are currently being constructed in 14 countries with over 130 more power reactors being planned and 250 more being proposed. Talk about a growing industry! Words: 776
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Rick Mills’ (www.aheadoftheherd.com) original article* for the sake of clarity and brevity to ensure a fast and easy read. Mills goes on to say:
In 2008, uranium mining supplied roughly 70% of nuclear utility power requirements. The remaining supply deficit used to be made up from stockpiled uranium held by these very same utilities but their stockpiles are pretty much depleted and the deficit is now primarily supplemented by ex-military material and this ‘Megatons to Megawatts’ program ends in 2013.
“The more that prices are depressed in the short term, the fewer mines that are likely to be built and developed and that could possibly exacerbate any price spike,” Will Smith, the London-based portfolio manager of Geiger Counter Fund told Reuters recently.
“A gap of almost 12 trillion kilowatt hours needs to be filled by 2030…. We expect nuclear energy to play a major role in this growth.” CIBC analyst Ian Parkinson said in a research note.
I’m not saying there is a shortage of uranium – there is enough to meet expected demand for the foreseeable future. Unfortunately, a lot of it is just not economic to dig out of the ground 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 called for increased demand.
A flat to downward uranium price through 2009 kept most uranium juniors in check throughout the year. There were only a very few companies that got any respect from investors and they all had one thing in common – they were large, open pit, lower grade deposits.
The lower grade open pit deposits being developed in Africa were, for 2009 anyway, the investment stars of the junior uranium sector. Could investors be catching on to the fact low-grade deposits can have low costs and therefore high profitability?
Maybe investors are starting to focus in on profitability and mine life instead of solely on grade. Are investors starting to catch on to the fact that the extremely high-grade deposits in the Athabasca Basin of Saskatchewan, Canada are freaks of nature and that a deposit with a much much lower grade is more representative – more the norm – for uranium deposits? Only time will tell.
The fact is, however, that despite the huge disparity in ore grade between high and low grade deposits, the other inputs of scale/cost can offset the lower grade. This results in almost identical gross margins between the two types of deposits. Of course, with a low-grade deposit, asset size does matter more. You need the size – the overall tonnage of the deposit – to be very large. This tonnage is required for success in spreading a big fixed capital cost over a large enough amount of input and over a long enough period of time. If companies can do that, their unit costs will be low enough to build an economically robust mine even in times of low uranium prices. Low grade can mean big profits for investors.
All new uranium production in the last five years has been from lower-grade material. When I started looking at the line-up of near term producers (those with economic studies), they were all lower-grade deposits. Remember, we’re not talking deep and complicated underground mining situations. We are talking about open pit mining prospects, simple, low-cost earth-moving operations. Investors can wrap their heads around these kinds of situations and do seem to be catching on to low-grade economics.
So where should uranium investors look for an investment? Well, companies with what appear to be extremely large low-grade bulk tonnage open pittable deposits, located in good mining jurisdictions, might be a good place to start.