Uranium

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	*Uranium exploration companies like [[Hathor Exploration (V-HAT-TSX)]] and [[Uracan Resources (V-URC-TSX)]] benefit, as their finds become more valuable.		*Uranium exploration companies like [[Hathor Exploration (V-HAT-TSX)]] and [[Uracan Resources (V-URC-TSX)]] benefit, as their finds become more valuable.
-	*Uranium production companies benefit the most from high uranium prices. In 2007, over 85% of the estimated world production of U3O8 uranium came from seven companies: [[Cameco (CCJ)]] (19%), [[Rio Tinto (RTP)]] (17%), [[Areva (ARVCF.PK)]] (15%), KazAtomProm (12% - Khazakstani), ARMZ (8%), [[BHP Billiton (BHP)]] (8%), and NAVOI Mining Metallurgical Kombinat (6% - Uzbekistani).<ref name=percent>[http://www.world-nuclear.org/info/inf23.html World Nuclear Association - World Uranium Mining]</ref> Other players include Cogema, [[Energy Resources of Australia (ERA-ASX)]], [[Denison Mines (Amex - DNN)]], [[Uranium One (UUU-TSX)]] , [[General Electric Company (GE)]], and Priargunsky Industrial Mining and Chemical Enterprise (Russian).	+	*Uranium production companies benefit the most from high uranium prices. In 2007, over 85% of the estimated world production of U3O8 uranium came from seven companies: [[Cameco (CCJ)]] (19%), [[Rio Tinto (RTP)]] (17%), [[Areva (ARVCF.PK)]] (15%), KazAtomProm (12% - Khazakstani), ARMZ (8%), [[BHP Billiton (BHP)]] (8%), and NAVOI Mining Metallurgical Kombinat (6% - Uzbekistani).<ref name=percent>[http://www.world-nuclear.org/info/inf23.html World Nuclear Association - World Uranium Mining]</ref> Other players include Cogema, [[Energy Resources of Australia (ERA-ASX)]], [[Uranium One (UUU-TSX)]] , [[General Electric Company (GE)]], and Priargunsky Industrial Mining and Chemical Enterprise (Russian).
	*Other sources of fuel for electricity production like [[coal]] and [[natural gas]] all see increases in demand when the price of nuclear energy, one of their largest alternatives, increases.		*Other sources of fuel for electricity production like [[coal]] and [[natural gas]] all see increases in demand when the price of nuclear energy, one of their largest alternatives, increases.

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Revision as of 11:22, November 10, 2009

Uranium is a metal whose only commercial use is as fuel for nuclear power plants, which provided around 16% of the world's electricity in 2007.^[1] Nuclear power is slowly making a comeback as an electricity source of choice in the U.S. market, reflected in the 17 applications filed since mid 2007 to build 26 new nuclear reactors.^[2] Also, in June of 2009 there was evidence of growing U.S. government support; the Energy Department said it would invest $18.5 billion in federal loan guarantees to four U.S. firms to help build a new generation of nuclear reactors.^[3]

Nuclear power is also likely to be key to the ongoing emergence of such economies as China and India,^[4] seen in their goals to double their nuclear capacity within the next 5-10 years.^[5][6] On the supply side, uranium production has been growing at a snail's pace, the major players have started locking up long term supply, and Russia and the U.S. have slowed down their refined uranium sales programs.^[7][8] As a result, demand for uranium has outstripped supply for every year since 1989.^[9] Despite all this, uranium prices fell 40% from October 07 to March 09.^[10][11] The global financial crisis is to blame - nuclear power plants represent huge capital investments, and demand for electricity is driven by business activity. With cheap credit a luxury of the past, raising billions of dollars for projects that won't start earning for at least six years has become very difficult.^[12] Still, expecting the nuclear industry to partially recover, analyst estimates compiled by Bloomberg in April of 2009 forecast that uranium prices will rise 30% by the end of the year.^[13]

The chart at left shows continuos front-month futures prices for Uranium traded on the NYMEX.

Prices, Ticker, Delivery Dates

Uranium Futures contracts are traded on the New York Mercantile Exchange under ticker symbol UX and are delivered in every month of the year. (For more information on commodity tickers, check out the commodity ticker construction page.)

Uranium spot prices have increased dramatically since 2003, when the commodity was under $10 per pound. Its peak spot price in 2007 was over $125 per pound and have since fallen to $50 as of November 2008.

Most utility companies secure a significant percent of their uranium fuel through long-term (i.e., multi-year) contracts with companies such as CCJ. These contracts are often priced in accordance to market conditions with uranium spot prices (i.e., short-term purchases for uranium within one year).

Who Benefits From Rising Uranium Prices

• Uranium exploration companies like Hathor Exploration (V-HAT-TSX) and Uracan Resources (V-URC-TSX) benefit, as their finds become more valuable.

• Uranium production companies benefit the most from high uranium prices. In 2007, over 85% of the estimated world production of U3O8 uranium came from seven companies: Cameco (CCJ) (19%), Rio Tinto (RTP) (17%), Areva (ARVCF.PK) (15%), KazAtomProm (12% - Khazakstani), ARMZ (8%), BHP Billiton (BHP) (8%), and NAVOI Mining Metallurgical Kombinat (6% - Uzbekistani).^[14] Other players include Cogema, Energy Resources of Australia (ERA-ASX), Uranium One (UUU-TSX) , General Electric Company (GE), and Priargunsky Industrial Mining and Chemical Enterprise (Russian).

• Other sources of fuel for electricity production like coal and natural gas all see increases in demand when the price of nuclear energy, one of their largest alternatives, increases.

• Utility companies with most of their electricity coming from coal, oil, or natural gas power plants like Alliant Energy, Ameren, AGL Resources, Atmos Energy, Dynegy, Energen, Equitable Resources, National Fuel Gas Company, National Grid Transco, ONEOK, PPL, Sempra Energy, and Southern Union Company, benefit when the margins of their nuclear competitors begins to shrink.

• Thorium Power (THPW) produces fuel for nuclear reactors which is composed of both uranium and thorium oxide. Although higher uranium prices raises expenses, this hybrid fuel is much more efficient than pure uranium.^[15] That makes it an attractive alternative when uranium prices are high.

• Because nuclear energy accounts for 20% of the total electric energy consumption in the U.S., a rise in uranium prices makes electricity more expensive for the entire economy.^[16] Higher energy prices means people will turn on their air conditioners less, meaning less wear and tear and therefore less frequent replacements. But high electricity prices also provide an increased incentive to replace old, obsolete equipment to more energy-efficient, higher priced lines. Carrier Corporation, a subsidiary of United Technologies, is the largest maker of air conditioners and refrigeration systems worldwide. Additionally, Emerson Electric Company (EMR) is the world's largest manufacturer of energy efficient (heat pump) compressors and is a global supplier to all major HVAC OEMs such as United Technologies.

Who Loses From Rising Uranium Prices

• Exelon, Dominion Resources, Entergy, Duke Energy Corporation, Constellation Energy Group (CEG), FPL Group (FPL), and Southern Company (SO), operators of nuclear power plants in the U.S., would not benefit from rising fuel expenses, as regulators may take their time or not even decide to raise prices.

• Nuclear power plant manufacturers and maintenance companies Westinghouse Electric, Shaw Group (SGR), Fluor (FLR), and Bechtel see smaller demand for new power plants when their product becomes more expense to fuel. However, nuclear power plants are more than 30-60 year investments - short term fluctuations in uranium prices only marginally impact their business.^[17]

Uranium Mining Overview

The major stages in the production of nuclear fuel are:

• Exploration
• Mining and milling
• Refining and conversion
• Enrichment and fuel fabrication (fuel manufacturing)

Similar to oil, mining companies generally explore for the largest concentrations of uranium. Though uranium itself is not scarce on Earth, only a small number of these concentrated deposits have been discovered worldwide.

With prices escalating, uranium-mining companies are eager to cultivate the material; though it generatlly takes seven to 10 years to find and bring a uranium discovery into production. That explains why uranium-mining production was only projected to increase 9% in 2007 over 2006.^[18]

Mining companies will typically sell uranium concentrates to utility companies, which then turn the fuel into electricity for consumption.

The world production of uranium in 2007 was approximately 107 million pounds of U3O8,^[19] 90% of which came from eight countries,^[19] which are, in order of greatest to least production:

• Canada (25 million pounds, 23% of world production)
• Australia
• Kazakhstan
• Russia
• Niger
• Namibia
• Uzbekistan
• United States

Drivers of Uranium Prices

Demand for Uranium Outstrips Supply

Every year since 1985, the world's consumption of uranium has been greater than its production. In 2006, 77,000 tons of refined uranium was demanded.^[20] Yet, in 2006, only about 50,000 tons of uranium was mined.^[20] That has forced some countries to run reactors at only 50% to 60% capacity, while others - such as India - have actually been forced to periodically take reactors off line because they lack the fuel to keep the plants running.^[21] Although uranium prices have fallen approximately 50% from December 2007 to December 2008, this dynamic still holds true^[22][23]; it isn't supply fundamentals that are driving uranium's price down, it's expectations of future supply and demand.

Factors Affecting Demand

The Global Economy Is Slowing

Nuclear energy is expensive. Said in 2005 by the CEO of Dominion Resources, "A new 1,400-megawatt nuclear power plant is going to cost about $2.6 billion. It is going to take 6 1/2 years to build. While you are building, you have to issue equity, you have to service that equity. You have to issue bonds; you have to service the bonds with interest. You don't have any money coming in. You have an average of $1.3 billion out for 6 1/2 years that is not earning anything."^[24]. This was said 2 years before the credit crunch, and 3 years before the credit collapse. Now, the cost of borrowing $2.6 billion is going to be much higher. Furthermore, with economies across the globe slowing down, demand growth for electricity is falling off. The combination of the two makes nuclear power plants a bad investment, which is why uranium prices have been falling at a record pace - from $138 in July 07^[23] to $45 in October 08.^[22]

Nuclear Energy Is Gaining Acceptance as a Clean, Reliable Alternative

New nuclear power plants are very safe,^[25] and in a bid to combat global warming and keep up with soaring demand for electricity, countries are rushing to build nuclear power plants. As of October 2008, there were 439 nuclear reactors in operation that generate about 15% of the world's electricity.^[26] In September 2007, 16 were under construction, 34 were on order and 86 were proposed.^[27] A year later, 26 were under construction, 99 were on order, and 232 have been proposed.^[26] That uranium prices have fallen 40% from October 2007 to October 2008, shows that the market expects large delays and cancellations.

China's Energy Appetite

As one of the least expensive energy sources on a per unit basis, nuclear energy will see increases in demand as the appetite for energy in large growing economies increase. China has announced its intention to increase nuclear energy production in its country 455% by 2020, and 1677% by 2030.^[5]

Cost of Coal & Natural Gas

As the price of coal and natural gas increase, electricity production based on traditional sources of fuel becomes more expensive. Nevertheless, nuclear energy is still the most expensive of the three.^[28] Several things could change that. One, government incentives have and will continue to make the construction and operation of select nuclear plants profitable. Two, the implementation of carbon taxes or a carbon trading scheme (as President Barack Obama has suggested)^[29] would make nuclear energy significantly cheaper than fossil fuels.^[28]

Alternative Energy Is Becoming Cheaper

With every passing day coal power, wind energy, hydroelectricity and solar power all become more cost efficient and eco-friendly. Nuclear energy is still the cheapest renewable source of energy.^[30] That lead won't last forever though. New technological developments are making the most viable of the competition, solar energy and wind energy, cheaper every year.^[31] However, it'll take a very long time until widespread reliance on alternative energy will be possible. Even the most optimistic projections by the Energy Information Administration (EIA) don't see more than the addition of a couple gigawatts of renewable energy capacity over the next ten years.^[32]

Factors Affecting Supply

Growing Economies Are Locking Up Supply

As the importance of securing renewable sources of energy rises, uranium is becoming more valuable. China is involved with long term deals that would effectively take Kazakhstan and some African countries out of the uranium production market.^[33] Russia has stopped selling its uranium at market prices, and is now building up large stockpiles for future use.^[34] Russia has also started signing deals with Australia, one of the two largest producers of uranium in the world.^[9] China isn't leaving Australia for Russia though, having made a multi-billion dollar deal themselves.^[34] Although these deals will take large supply off of the market, it will also take large demand with it. However, in a market where demand outstrips supply, these deals will take out a higher percentage of supply than demand, pushing the price of uranium upwards.

Nuclear Weapons

Because nuclear weapons contain ultra-enriched uranium, a single ton of military high-enriched uranium is equivalent to 350 tons of uranium oxide.^[35] Since 2000, uranium from the U.S. and former countries of the USSR has provided 13% of the world's uranium requirements.^[35] However, Russia's supply is slated to end around 2013,^[8] and the U.S. has started to downsize its uranium selling program.^[7]

Notes

1. ↑ World Nuclear Association - What is uranium? How does it work?
2. ↑ World Nuclear Association - Nuclear Power in the USA
3. ↑ Letzing, John, Four power companies are expected to split $18.5 billion in federal financing to help build a new generation of nuclear reactors, according to a report published late Tuesday. MarketWatch June 16, 2009
4. ↑ Blogging Stocks - China, India see nuclear energy as essential to electricity plan
5. ↑ ^{5.0 5.1} World Nuclear Association - Nuclear Power in China
6. ↑ World Nuclear Association - Nuclear Power in China
7. ↑ ^{7.0 7.1} StockInterview.com - U.S. Government May Sell ‘Very Small’ Amount of Uranium in 2007
8. ↑ ^{8.0 8.1} Mining Weekly - South Africa seen as pivotal source of uranium supply
9. ↑ ^{9.0 9.1 9.2} Seeking Alpha - Four Best Global Deals on Uranium
10. ↑ Mineweb - Uranium prices fall again as credit crunch bites
11. ↑ UxC - Ux Price Indicators
12. ↑ Mineweb - Uranium prices fall again as credit crunch bites
13. ↑ Bloomberg - Copper’s Declining Demand Pushes Prices 21% Lower
14. ↑ World Nuclear Association - World Uranium Mining
15. ↑ Technology Review - Cleaner Nuclear Power?
16. ↑ Stanford Formal Reasoning Group - FAQ About Nuclear Energy
17. ↑ Leonardo Energy - Life expectancy of nuclear power plants
18. ↑ Money Morning Report
19. ↑ ^{19.0 19.1} TradeTech - World Uranium Production & Requirements
20. ↑ ^{20.0 20.1} Energy And Capital - Sound Investing:Uranium
21. ↑ The Hindu Business Line - India working out uranium supply arrangements
22. ↑ ^{22.0 22.1} UxC - UxC Nuclear Fuel Price Indicators
23. ↑ ^{23.0 23.1} Australian Government, Atlas Of Minerals Resources - Uranium
24. ↑ Washington Post - Uncertainties Slow Push for Nuclear Plants
25. ↑ World Nuclear Association - Safety of Nuclear Power Reactors
26. ↑ ^{26.0 26.1} World Nuclear Association - World Nuclear Power Reactors 2007-08 and Uranium Requirements
27. ↑ World Nuclear Association - World Nuclear Power Reactors 2006-07 and Uranium Requirements
28. ↑ ^{28.0 28.1} Natural Resources Defense Council - The Future Role of Nuclear Power in the United States
29. ↑ International Centre for Trade And Development - Obama Calls for Carbon Trading Scheme, Vows Strong Action on Climate
30. ↑ Climate Progress - Nuclear power, Part 2: The price is not right
31. ↑ Eco Geek - Cost of Solar Panels Expected To Plummet
32. ↑ Energy Information Administration - Renewable Energy Projections in Alternative Scenarios
33. ↑ Financial Sense - BIG JOURNEYS BEGIN WITH SMALL STEPS
34. ↑ ^{34.0 34.1} Uranium Stocks - Peter Schober Gives His View On Uranium
35. ↑ ^{35.0 35.1} World Nuclear - Supply of Uranium

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