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 many price projections might be inaccurate because “people are underestimating future demand.”
StockInterview: Price forecasts on spot uranium are widening. Some insiders have predicted uranium prices may possibly drop back to the $30/pound range; others, such as yourself, continue to suggest $50/pound or higher. Any comments on the forecasts others are creating?
Kevin Bambrough:
There are several folks forecasting uranium prices now. It’s important to take into account their track record of forecasting prices. Look at the contracts that have been written by many companies within the industry, over the last number of a long time. Anyone who had ceilings, or had signed fixed-priced contracts, has been punished. Extremely few folks inside the business predicted what has happened. Looking 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 inside the past. It is going to be the more marginal, much higher cost producers who will be setting the price.
StockInterview: Isn’t there a sense of false optimism that “projects within the pipeline” will ensure an ongoing stream of uranium oxide for the nuclear fuel cycle?
Kevin Bambrough:
There are a lot of folks looking at the supply situation going forward although underestimating future demand. They may be extremely optimistic that mining projects are going to go as planned. We had current 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 a long time 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 of the world’s current consumption. Cigar Lake would need to ramp up over a three yr period, once it gets started. Now, there is really a six month delay. What if it’s delayed a yr? That really changes the production profile for the next decade. There are numerous projects that could see delays. The mining business 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 every yr? That’s another 16 to 30 million pounds per yr of demand just because from the start up.
StockInterview: Does this mean the current uranium bull industry nevertheless has strong legs?
Kevin Bambrough:
I think we’re entering the second leg with the bull industry here. It is going to move away from a supply shortage story, where we focus on the fact that we only get about 60 percent with the current consumption from mines, while the inventories are being worked off. Now, we’re moving into a situation where we’re seeing an explosion in demand growth. 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 planet. Now we’ve got well over 100 being planned. It seems there are new additions and talk of a lot more additions every morning.
StockInterview: How you envision this nuclear buildup rolling out?
Kevin Bambrough:
I don’t believe it’s unreasonable to believe, searching ten to twenty years out, there are going to be a lot of countries that will be trying to have within 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 exactly where maybe 50 percent of global energy production or more could eventually be supplied by nuclear. There is nothing else that may actually 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 a lot more with coal, but if we’re going to keep using coal we’ve got to put in place technology to take care with the carbon dioxide sequestration. In case you want to possess a stable, secure supply of electricity, it seems that you’re going to must go with much more nuclear or eventually with these new coal technologies. I think there is going to need 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:
The most interesting point may be the fact that some environmentalists are leading the charge to go more nuclear. It’s because they realize nuclear energy is the only practical alternative and because of the situation with the carbon dioxide (CO2) levels. There happen to be some current reports about CO2 levels reaching 381 parts per billion, just spiking out from the range that has kept the globe in a relatively stabile environment for the last 400,000 years. Should 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 turn out to be recognized as 1 of the only ways to have a actual impact. I think what we’re going to see is an unprecedented build out in nuclear capacity throughout the planet within the coming many 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 as a transportation fuel. What’s going to happen with the individuals who have the higher quality uranium reserves and lower cost production? They are going to be capable to reap massive profits over the coming decades.
StockInterview: Seeking ahead, do you believe we’ll see a lot more deals between a little uranium producer, such as Uranium Resources (OTC BB: URRE) and the Japanese multi-national conglomerate, Itochu Corporation?
Kevin Bambrough:
I’ve no doubt that it’s going to continue to happen. More importantly, I’ve heard that some from the major builders of nuclear facilities around the planet, companies such as Areva are really concerned concerning the availability of supply going forward. When these companies 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 acquire a nuclear facility. I’ve heard they may be looking to do joint ventures or at least contract with emerging producers to try to get 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 acquire from Australia, or will they have to 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 think that the nuclear power industry must operate on a just in time basis, considering the costs and the risks of creating sure it is possible to secure supply. Don’t get me wrong. There is plenty of uranium in the world, but we’re just going to must pay up for it. I believe we’re going to consume great deal 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 very much of a factor will Russia play inside the nuclear build up?
Kevin Bambrough:
Looking at some with 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, really 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 capable 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 years ago, the critics said there would never be any a lot more nuclear plants built within the U.S. People utilized to say nuclear was over for Germany, and that many 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 globe are saying about global warming, and the acceleration we’ve recently seen continues, people are going to be begging to have a lot more nuclear facilities and cut CO2 emissions. The environmentalists will be leading the charge.
StockInterview: How long will it take before the proposed nuclear build up impacts the uranium mining companies?
Kevin Bambrough:
The actual build of all this takes time. I consider the increase within the positive perception, from the nuclear business is going to continue to accelerate. All demand for uranium can come from just the planning stage for nuclear power plants, as businesses look forward and try to contract future supply. Ultimately, that’s what will keep driving the uranium price higher.
StockInterview: How seriously is the nuclear industry taking the global build up?
Kevin Bambrough:
I believe the industry is starting to take it extremely seriously. That’s why the uranium price keeps pushing higher. Folks are going around trying to contract for uranium, and they may be finding it more difficult. Individuals are also starting to realize that as you might have problems, such since the McArthur River flooding, which got the uranium bull marketplace jump started, and now a problem at Cigar Lake, you really ought to have a good 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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