Thank you for your contribution regarding the uranium investment theme.
You are right, the information in our write-up is based on publicly available information. We believe it's a balanced overview of the current, near-term and mid-term situation. Even if we had possesion of such, we are not interested in disclosing information which is not in the public domain.
You're right about Kazakhstan. It set record production figures last year, and industry commentators expect continuing high production from Kazakhstan, but, from our perspective that's certainly not a place where most people would choose to invest.
Extract Resources' uranium mining project is located in Namibia, not Australia. We haven't (yet) commented on any Australian-based uranium companies nor our views about the likelyhood of a 'relaxation' in uranium mining policy in Australia. And its possible impact on uranium spot prices and the uranium mining industry.
Whilst we haven't covered the so-called Redbook in our write-up -a two yearly report put together by the OECD Nuclear Energy Agency and International Atomic Energy Agency- , it has some very interesting information. According to the Red Book, the world spent $1.64 billion on uranium exploration and mine development in 2008. That's a 133% increase from 2006. Even with that massive increase in spending, the world's low-cost uranium resources (under $50 per pound) declined 1.2%. The Red Book mentions the "high cost" category, which includes resources in the $100 range. Those resources rose 16% from the year before. That sounds bullish to me for uranium. The cheap stuff is in production. Much what's left is the high(er)-cost stuff. There are only very few low-cost miners expected to come on-stream in the near future, and we have reported on one which is easily to invest in for UK investors: Kalahari Minerals Plc.
Unfortunately, uranium mines are poor performers. Actual production is about 85% of planned production. In 2008, the numbers were even worse. The world's uranium mines planned to produce 60,000 tons of uranium. They could only manage about 40,000 tons.
In our write up we believe we have demonstrated the case of increasing uranium demand due to growing electricity demand, partially being met by planned new nuclear power plants in an increasing number of countries, in particular China, India, South Korea, Russia, etc. At its peak, back in the 1980s, the nuclear industry started up a new reactor every 15 days. By 2015, we could see a new reactor coming online every ten days.
Both China and India understand the implications of that growth. Is that the reason why Russia is unlikely to extend the decommissiong deal of its nukes with the USA and instead keep the nuclear fuel itself, going forward?
According to Bloomberg, both China and India (and others too) are (already) stockpiling the fuel. China could purchase more than twice as much uranium as it will use this year. The proposed reactors in China alone could consume more than 30% of the uranium mined today. That's why the country signed a 10-year, 10,000-ton deal with uranium miner Cameco. Hoarding from countries such as India and China should keep a price floor under uranium, well above the $40, as we mention in our write-up.
Our view remains therefore: rising uranium consumption will lead to higher uranium prices over the mid-to-long term. Offering an interesting opportunity for a new low-cost miner when it starts mining its uranium ore in a couple of years.
A general point about these "next big thing" get rich quick deals. Even if the general assessment of something like the future of nuclear power is correct, it does not take away the need for timing in trading or investment.
Whatever you think you know about the fundamentals, industry specialists at fund managers know a whole lot more, and that is priced into the market capitalization of stocks. The linked piece is not such a bad summary but it contains absolutely nothing that everybody else doesn't know.
Wrt to uranium
1. The big expansion in uranium mining is in Kazakhstan.
2. If BHP's Olympic Dam expansion in South Australia goes ahead there will be a big increase in world uranium supply.
3. Just because you find a shedload of uranium in Australia, doesn't mean you will be allowed to mine it. The "three mines" policy is slowly being relaxed but only slowly.
4. Recent MIT study suggests there is no risk of running out of uranium for once through fuel cycle reactors in any conceivable growth of nuclear power for 50 years or more. Uranium is more plentiful than tin in the earth's crust.
5. The nuclear industry has long lead times. From 4 - 10 years to build a new nuclear power plant. The biggest build by far is in China. I would be very surprised if they had not secured their fuel supplies well in advance. There is a nuclear renaissance, but it will take some time.
