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Could Spot Uranium Rates Reach $100/pound?

July 28th, 2010

Vitality Guru Bill Powers Forecasts Uranium Shortfall in Three Many years. Bill Powers focuses on purchase opportunities inside the Canadian energy sector, mainly independent oil & fuel companies and now uranium companies. We talked with him and he thinks uranium could reach $100/pound this decade.

Interviewer: A lot of newsletters cover oil and fuel, but you picked uranium, which hardly anyone was covering until recently?

Bill Powers: I feel the uranium industry correct now is the world’s most unbalanced commodity market. Inside a sense, the globe, by means of the nuclear power business, consumes approximately 172 million pounds of uranium per year, and the world only produces about 92 million pounds of uranium per year. The supply deficit is made up through above-ground inventories, which are being worked down pretty quickly. Those numbers were supplied by Uranium Information Center. A great deal of my information arrives through the U.S. Department of Energy (DOE) or the Nuclear Regulatory Commission. For example, I discovered from them how the U.S. made, via the 1980s, about 43.seven million pounds of uranium. And by 2002, the U.S. only produced about 2.34 million pounds of uranium.

Interviewer: Where is uranium getting made within the United States?

Bill Powers: Wyoming. There’s also a uranium facility in Nebraska. I consider you will find two in-situ leach plants in Wyoming and another one in Nebraska. There are a couple of phosphate farmers in Florida who create uranium. I believe there can be a facility in Texas that also produces uranium. For the most part, the uranium business in New Mexico has just about been wiped out. The very low costs that we’ve seen, for about twenty many years, have pretty very much wiped out the whole U.S. uranium business. To go from over 43 million pounds to less than 2.5 million pounds, it has really only allowed the most productive, highest margin and most efficient mines within the nation to continue operating in that environment.

Interviewer: So that makes the U.S. a net importer of uranium?

Bill Powers: Absolutely. According towards the DOE, US imports have gone from 3.6 million pounds per year in 1980 to 52.seven million pounds per year in 2002. A great deal of it comes from Canada, but a considerable amount is coming in the Russians, by means of a program referred to as HEU (highly enriched uranium): the megatons to megawatts program. It is exactly where the United States Enrichment Corporation, as properly as its partner in Russia, took highly enriched uranium and broke it down into lower grade uranium that could be marketed to nuclear power firms throughout North America and around the world. This has been 1 of the reasons we’ve had reduced costs. All of this uranium has cluttered the market the past few several years. As well as the US Enrichment Corporation has a lot to do with why we’ve seen low uranium costs here inside the States. I had a conversation with them concerning the fact that since 1998, when they became a public organization (right after getting a organization that was owned by the U.S. government), their long-term inventories of uranium had declined. When they became a private corporation, the U.S. government gave them 7,000 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 year because 1998. According to my conversation with them, they have about three to four much more several years of marketing. It’s because the US Enrichment Corporation wants to have out from the uranium storage business, and they want being in the processing enterprise.

Interviewer: How extended will it be, do you believe, just before USEC is planning to stop becoming a factor for the marketing cost strain of uranium?

Bill Powers: I would possibly say in about three several years. For your uranium they are now marketing, the price from the uranium to them was zero. This has truly produced that company seem really profitable. They are selling about $100 million worth of uranium every year, and they intend to do this at regardless of what cost. That is an extremely bullish scenario proper now simply because uranium costs have touched twenty-year highs, despite the fact that USEC is dumping a lot more than three percent of the world’s uranium consumption onto the market place. When this dries up, we should see markedly greater uranium prices.

Interviewer: How high is large when you say that?

Bill Powers: I would say up to $100 per pound. Just before the finish of this decade, uranium will possibly be $100/pound. The Russians are likely to be holding back some of their output through the megatons to megawatts project. Their (the Russian) uranium is going to be required for internal consumption. Russia has a growing nuclear power industry. They have to have uranium supplies available. They’re not likely to be selling as a lot as they had in earlier many years. It appears it is likely to be really essential to factor in reduced Russian supplies as nicely as when USEC gets out with the company.

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 out of uranium exploration and production, and it is really a extremely safe method to perform uranium. But I think you will find far much better opportunities out there. Certainly one of my favorite businesses is Strathmore Minerals (TSX-V: STM) I truly 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 because, proper now, uranium has gone by means of a twenty-year depression. The costs for some of these pretty far advanced projects are really cheap. I believe they are properly leveraged for that. One more safe way to perform 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 in a position to use their money flow from their existing manufacturing to further expand some of their properties. With UEX Corporation (TSX: UEX), Cameco was the shareholder. UEX was founded a number of several years ago with Pioneer Minerals. Equally from the businesses put in properties. It’s appear 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 elements, 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. That is not really nicely recognized. As demand continues to rise, and planet production starts a downward slope, we’re heading for very much increased crude oil costs. I see very much higher rates later this decade, if nothing goes wrong. What I mean by that may be the normal market equilibrium price of crude oil ought to be $50 within the following eighteen months. And possibly over $100 by the end of this decade if nothing goes dramatically wrong. That would arrive through the normal decline of existing reservoirs, limited new discoveries, and increasing demand. Nonetheless, if a country, this kind of as Saudi Arabia, were to possess a regime change…

Interviewer: Are you looking for a regime change in Saudi Arabia?

Bill Powers: Yes, there is a entire body of evidence that supports this. Terrorist incidents are becoming much more violent and closer together in Saudi Arabia. Correct now, we’re seeing individuals attacks targeted to the oil workers. I believe it won’t be too long just before individuals attacks are focused much more on the royal family. I believe that may be the subsequent stage in Saudi Arabia. There’s a really excellent opportunity, which history supports, is when you will find sudden regime changes in oil-exporting countries, oil exports from individuals countries drop considerably. Regardless of what have been to happen, as far since the political situation, a great deal of their fields, especially Ghawar, which may be the biggest oilfield within the world – 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 h2o into injection wells to push the retain manufacturing flat What this has accomplished is it keeps manufacturing flat, but it is sort of an illusionary fountain of youth. In case you retain injecting water, the amount of drinking water you produce, along using the oil, continues to rise. As the drinking water cut continues to improve, the amount of oil created can fall dramatically. If that were 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, exactly where they had a whole lot of water flooding and horizontal nicely drilling. Yibal has gone from 250,000 barrels per day inside the late 1990s to about 80,000 barrels per day now. If we have been to get that type of decline in Ghawar, the world is planning to be seeing higher costs just on that. Correct now, there’s not any excess oil manufacturing supply anywhere in the planet. A relatively small reduction in availability of supply will lead to an exponentially higher oil price tag.

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