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When Uranium Outshines Gold

oil&gas

Well-known member
Apr 16, 2002
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Ghawar
The long term supply deal just signed between China and Cameco could
be a signal of uranium price to rebound IMO.

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http://www.nytimes.com/2010/11/17/business/energy-environment/17FUND.html?src=busln

JOHN LORINC
November 16, 2010


EARLIER this month, Global X Funds of New York announced plans
for two exchange-traded funds — one for gold stocks, the other,
uranium. Initially, Bruno del Ama, its chief executive, figured he knew
which would capture the market’s attention. After all, gold prices
have surged in recent months.

As it transpired, he guessed wrong. Global X’s Uranium E.T.F. — with
holdings in companies like the Cameco Corporation, Paladin Energy and
Uranium One — was a hit as soon as it went on sale Nov. 9, with early
trading volume outpacing Global X’s gold E.T.F. by five to one. “I’m
in shock, to be honest,” he said.

Mr. del Ama is hardly alone. Uranium industry insiders were caught off
guard by a deep run-up in spot market prices, which are now about $58
a pound, up sharply from the low $40s in the summer. “We all knew
it was going to happen,” says Ron F. Hochstein, the president and
chief executive of the Denison Mines Corporation. “We just didn’t
anticipate it would happen this year.”

As Adam Schatzker, an analyst with the Canadian investment bank RBC
Capital Markets, said in an equities research report published last week:
“It appears that the character of the spot market has changed markedly
over the past few months from one that was heavily oversupplied with weak
demand to one that has high levels of demand with very little supply.”

On Nov. 1, China’s long-term planning agency announced that by 2020
it intended to raise nuclear power’s share of the country’s total
energy production to 112 gigawatts, or 7 percent, up from the previous
target of 70 gigawatts. That translates into an additional 82 million
pounds of uranium, according to RBC.

Just as Global X’s uranium E.T.F. went on sale, the French nuclear giant
Areva signed a 10-year, $3.5 billion deal to supply 20,000 tons of uranium
fuel to the China Guangdong Nuclear Power Corporation. Areva is a minority
partner in the Taishan plant, described as the largest civil nuclear
project ever. Cameco signed a similar deal earlier this year. “The
Chinese are really showing their cards,” Mr. Schatzker said.

Russia, South Korea and Pakistan are also developing reactors and
preparing to stockpile long-term inventories. The activity isn’t just
domestic: China is reported to be helping Pakistan build five reactors,
according to a report in The Financial Times, while South Korea recently
won a large reactor project in the United Arab Emirates.

Pointing to a 17 percent year-over-year increase in production for 2010,
Cameco’s chief, Jerry Grandey, said during an analysts’ conference
call last week that the company was also anticipating increased demand
from India, which has signed nuclear cooperation agreements with the
United States and Canada in recent years.

These moves contrast sharply with the situation in North America, where
many nuclear projects are stalled because of economic uncertainty and
a lack of government financing. Still, many analysts anticipate the
Asian nuclear program will drive uranium prices to $70 to $80 a pound
in the next several years — a level that will set off a new wave of
exploration and mine development.
Lacking domestic uranium sources, China and companies like Paladin are
also beginning to develop uranium mines in African countries including
Namibia and Niger. Mr. Hochstein’s firm, whose largest shareholder is
the South Korean nuclear utility, is working on a facility in Mongolia.

These latest developments are welcome news for uranium producers, some
of which struggled in recent years after a mid-2000s boom was followed
by a price collapse that created what Mr. Schatzker describes as a
“liquidation” market.

Over the last decade, Kazakhstan rapidly became the world’s
largest uranium producer, overtaking Canada with vast increases in
production. According to World Nuclear Association figures, Kazakh
production jumped 62 percent from 2008 to 2009. Overall global demand
remained steady, however, because the long-promised nuclear renaissance
was always just over the horizon.

In the meantime, Cameco and Energy Resources of Australia both had large
mine projects stalled because of floods. After a complicated remediation
process, Cameco’s Cigar Lake mine in Saskatchewan, the largest in the
world, will come online in 2013.

Further complicating the picture was the fact that many nuclear utilities
were acquiring fuel on the so-called secondary market — reprocessed
uranium from decommissioned warheads, uranium tailings and spent
reactor fuel.

Robert Vance, an analyst for the Nuclear Energy Agency in Paris, said
a third of the world’s uranium had come from such sources, including
9,000 tons a year from Russia. He said the Russian secondary supply
stream would end in three years.

Indeed, as 2010 draws to a tumultuous close, many uranium industry
insiders are thinking ahead to the state of the market circa 2014 and
beyond. As Mr. Grandey, of Cameco, said last week, “There’s a lot
of uncovered need.”

Mr. Vance said uranium was not especially rare, but the licensing and
mine development process could take years, especially in politically
volatile countries like Niger, and required prices to be in the high $50s.

Some industry watchers say that North American utility fuel buyers have
not yet absorbed the implication of these price trends on their own
operations. “There’s no real sense of crisis, yet,” says Lawrence
Smith, a uranium analyst for Scotia Capital, the investment banking and
capital markets division of the Scotiabank Group. “Western utilities are
pretty well covered in 2011 and 2012. Further out, it becomes an issue.”
 
Ashley Madison
Toronto Escorts