Recognizing Opportunity In Difficulty

Richard (Rick) Mills
Ahead of the Herd

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

Right now I’m a big fan of uranium, cobalt and silver. Here’s why…

Uranium

In 2012 world consumption of uranium was 165 million pounds versus 152 million pounds of mined uranium production. Globally there are 434 nuclear reactors operable, 67 reactors are under construction, 159 are on order or planned and 318 are proposed.

For investors the uranium supply/demand picture is interesting for several reasons:

1. Nuclear power generation is being ramped up across the globe.
2. Japan is restarting its reactors.
3. The Megatons to Megawatts deal, the HEU agreement, is coming to an end.
4. The U.S. has no uranium security of supply

Global uranium stockpiles have been filling the gap between consumption and production for more than two decades. By far the largest contributor has been the Russian Highly Enriched Uranium (HEU) agreement, providing 24 million pounds of uranium to the market every year. However, secondary supplies are drying up and the HEU agreement is coming to an end in 2013.

Cameco (one of the world’s largest publicly traded uranium companies) estimates world uranium demand will increase to about 240 million pounds by 2022.

The U.S. is in an especially dire situation in regards to the security of its uranium supply and the situation doesn’t look set to improve through exploration or new mine development anytime soon. Employment for uranium exploration in the U.S. was 161 person-years in 2012, a 23 percent decrease compared to 2011. The long lead time of uranium mine development – up to ten years – means that the industry is unable to respond quickly to sudden increases in demand or significant supply interruptions. With the recent lower uranium prices, delays and cancellations of new projects is becoming the norm and exacerbating the coming global and U.S. supply crisis.

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.

Expect uranium spot prices to start climbing to equalize with long term prices and then both to begin a rapid advance as the supply squeeze starts to be felt.