Summary: Sprott Asset Management uranium expert Kevin Bambrough talked with us about the “second leg” of the current uranium bull industry. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.” He said numerous price projections may possibly be inaccurate because “people are underestimating future demand.”
StockInterview: Price forecasts on spot uranium are widening. Some insiders have predicted uranium prices may drop back to the $30/pound range; others, such as yourself, continue to suggest $50/pound or higher. Any comments about the forecasts others are producing?
Kevin Bambrough:
There are several individuals forecasting uranium costs now. It’s important to consider their track record of forecasting prices. Look at the contracts that happen to be written by numerous companies within the business, over the last number of a long time. Anyone who had ceilings, or had signed fixed-priced contracts, has been punished. Very few folks in the industry predicted what has happened. Searching forward, I believe that in our view, the cost of production of current producers isn’t going to be as relevant as it has been within the past. It will probably be the a lot more marginal, very much higher cost producers who will probably be setting the price.
StockInterview: Isn’t there a sense of false optimism that “projects in the pipeline” will ensure an ongoing stream of uranium oxide for the nuclear fuel cycle?
Kevin Bambrough:
There are lots of folks looking at the supply situation going forward whilst underestimating future demand. They may be really optimistic that mining projects are going to go as planned. We had recent news that Cigar Lake had a problem. There was a flood the. There’s a couple million pounds shortfall to most people’s models for at least two a long time. All because of 1 mine’s six month delay.
StockInterview: Would that have the kind of impact the McArthur flooding (Athabasca Basin, Cameco) had for the spot uranium price a few years ago?
Kevin Bambrough:
I think it could. It was forecast to go up to 18 million pounds of production. That would are already ten percent with the world’s current consumption. Cigar Lake would need to ramp up over a three yr period, once it gets started. Now, there can be a six month delay. What if it’s delayed a year? That truly changes the production profile for the next decade. There are several projects that could see delays. The mining company is often full of delays. Remember that when we bring on new nuclear plants, they take on average about 1.6 million lbs when commissioning. What will happen, if in a decade, we bring on just 10 or 20 reactors each and every yr? That’s another 16 to 30 million pounds per year of demand just because with the start up.
StockInterview: Does this mean the current uranium bull industry nevertheless has strong legs?
Kevin Bambrough:
I consider we’re entering the second leg from the bull marketplace here. It’s going to move away from a supply shortage story, in which we focus for the fact that we only get about 60 percent from the current consumption from mines, although the inventories are being worked off. Now, we’re moving into a situation where we’re seeing an explosion in demand development. Just a couple of years ago when we first started Investing in uranium, we could see probably about a dozen nuclear facilities being planned for construction throughout the globe. Now we’ve got well over 100 being planned. It seems there are new additions and talk of a lot more additions every day.
StockInterview: How you envision this nuclear buildup rolling out?
Kevin Bambrough:
I don’t think it’s unreasonable to think, searching ten to twenty a long time out, there are going to be a lot of countries that is going to be trying to obtain in the position that France is in, with a very much higher percentage of their power coming from nuclear generation. We could see a move to in which maybe 50 percent of global energy production or more could eventually be supplied by nuclear. There is nothing else that will really step up and fill the void and take care of this problem that we’re having. France produces 78 percent of their electricity from nuclear. Why isn’t that reasonable for others? Look out a decade or two, and it doesn’t appear like we’re going to have the oil and the gas in order to handle our needs. Obviously we can do much more with coal, but if we’re going to keep using coal we’ve got to put in place technology to take care of the carbon dioxide sequestration. If you want to possess a stable, secure supply of electricity, it seems that you’re going to have to go with a lot more nuclear or eventually with these new coal technologies. I consider there is going to have to be a balance of each, because the oil and gas just isn’t going to be there.
StockInterview: What do you consider could be the catalyst for this anticipated development in nuclear energy demand?
Kevin Bambrough:
Probably the most interesting thing may be the fact that some environmentalists are leading the charge to go more nuclear. It’s because they realize nuclear energy may be the only practical alternative and because with the situation with the carbon dioxide (CO2) levels. There happen to be some latest reports about CO2 levels reaching 381 parts per billion, just spiking out of the range that has kept the world in a relatively stabile environment for the last 400,000 years. In case you look at the work of folks like James Hanson, the correlation between CO2 levels and temperature is undeniable. Basically, mankind has increased the CO2 levels beyond a degree that hasn’t been seen in over a million many years. We are just starting to see the weather impacts. There are problems with droughts across the planet too as elevated hurricane activity. Going nuclear on a mass scale is starting to become recognized as one with the only ways to have a genuine impact. I believe what we’re going to see is an unprecedented build out in nuclear capacity throughout the planet in the coming years and decades. I’d equate this to what happened when we went from using oil for just lamps and house heating to using it like a transportation fuel. What’s going to happen with the people who have the higher quality uranium reserves and lower cost production? They may be going to be capable to reap massive profits over the coming decades.
StockInterview: Seeking ahead, do you consider we’ll see more deals between a tiny uranium producer, such as Uranium Resources (OTC BB: URRE) and the Japanese multi-national conglomerate, Itochu Corporation?
Kevin Bambrough:
I have no doubt that it’s going to continue to happen. More importantly, I’ve heard that some of the major builders of nuclear facilities around the world, firms such as Areva are very concerned about the availability of supply going forward. When these businesses are talking to countries and utilities that potentially could contract to build nuclear facilities, they’re basically being told that buyers want uranium supply assurances, or they aren’t going to give an order to buy a nuclear facility. I’ve heard they’re looking to do joint ventures or at least contract with emerging producers to try to have future supply. Then, they will be capable sell their nuclear technology to countries and ensure supply.
StockInterview: Will the Chinese be satisfied with the uranium they plan to purchase from Australia, or will they must tap into uranium production from another or other countries?
Kevin Bambrough:
I consider that the Chinese will probably look elsewhere too. Countries have strategic oil reserves. Why shouldn’t they have strategic uranium reserves to supply their nuclear reactors? It makes sense to have an excellent stockpile of uranium considering the relative cost of nuclear power versus anything else. I don’t believe that the nuclear power business must operate on a just in time basis, considering the costs and the dangers of creating sure you are able to secure supply. Don’t get me wrong. There is plenty of uranium within the planet, but we’re just going to need to pay up for it. I believe we’re going to consume whole lot more than what we’re consuming nowadays – a decade or two out. The world is waking up to the reality of peak oil production, and how it is going to affect all aspects of energy production.
StockInterview: How much of a factor will Russia play within the nuclear build up?
Kevin Bambrough:
Seeking at some of the current statements created by Russian officials, it’s completely clear to me that we’ve been correct in what we’ve been thinking for a long time: the HEU agreement (to deliver highly enriched uranium and have it blended down) is probably not going to be renewed. The Russians are planning to make nuclear technology a key export for them, truly as a value added product to go with uranium production. They desire to be able to offer a complete solution, not just uranium, but the actual building and technology around the nuclear facilities themselves. They will also have growing uranium demands domestically and have voiced concern about being able to meet their own needs beyond 2015.
StockInterview: But nuclear energy critics claim all of these power plants won’t secure financing and most plans are just pipe dreams never to be built.
Kevin Bambrough:
Two many years ago, the critics said there would never be any a lot more nuclear plants built in the U.S. Folks employed to say nuclear was over for Germany, and that several countries would exit nuclear power. Now we’re seeing the exact opposite. We’re seeing proposals being done, incentives put in place, and a multitude of projects moving ahead. If what the leading scientists from NASA, the NOAA and from numerous organizations around the world are saying about global warming, and the acceleration we’ve recently seen continues, folks are going to be begging to have a lot more nuclear facilities and cut CO2 emissions. The environmentalists is going to be leading the charge.
StockInterview: How long will it take just before the proposed nuclear build up impacts the uranium mining firms?
Kevin Bambrough:
The actual build of all this takes time. I believe the increase inside the positive perception, from the nuclear industry is going to continue to accelerate. All demand for uranium can come from just the planning stage for nuclear power plants, as companies look forward and try to contract future supply. Ultimately, that’s what will keep driving the uranium price higher.
StockInterview: How seriously may be the nuclear business taking the global build up?
Kevin Bambrough:
I consider the business is starting to take it really seriously. That’s why the uranium price keeps pushing higher. Individuals are going around trying to contract for uranium, and they are finding it a lot more difficult. People are also starting to realize that as you’ve problems, such since the McArthur River flooding, which got the uranium bull marketplace jump started, and now a problem at Cigar Lake, you really must have an excellent build up of inventory in order to protect yourself in this environment. Especially when the relative cost of having to switch off a nuclear facility to go to something else in a pinch is multiples higher.
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