Nice uranium article in Globe and MailENERGY
High oil and gas prices will sustain uranium boom, analysts sayBuilding nuclear power plants seen as competitive option to generate electricity.
By ALLAN ROBINSON
Friday, May 27, 2005 Page B11
INVESTMENT REPORTER
The price of uranium has surged to a 23-year high, but don't expect the traditional boom-and-bust cycle to undermine the commodity any time soon. This time, it's different, its supporters say.
While many investors might shudder at those words, the argument is a strong one: High oil and gas prices are here to stay and one of the best competitive options to generate electricity is to build nuclear power plants.
"We've met with everyone from big commodity traders, to the utilities and the miners," said Greg Coules, managing director and head of research for Metropolitan Capital Advisors Inc., a New York-based hedge fund currently playing the uranium sector. "Nuclear power plants are a long-term solution to fossil-fuel-fired electricity."
Uranium doubled in price to $20 (U.S.) a pound during 2003-04 and this year it has climbed to $29. As recently as the end of 2000, it was trading at $7.10.
More and more speculative funds seem to be agreeing with Mr. Coules' assessment. Analysts say a $5 spike in the price this month was at least partly attributable to demand from speculative funds.
Uranium Participation Corp., which invests in uranium oxide in concentrates, began trading on the Toronto Stock Exchange earlier this month and is managed by Denison Mines Inc., while Adit Capital Management of Portland, Ore., in partnership with other funds, began to buy uranium late last year.
Shares of Cameco Corp., the world's largest uranium producer and one of the few ways for retail investors to play the commodity, has more than doubled in the past 12 months even though much of its production is locked in at prices that don't reflect recent gains. About one-quarter of Cameco's long-term contracts are renegotiated every year.
They are betting on demand continuing to outstrip supply. Thirty nuclear power plants are under construction in 11 countries, mainly in Asia, and the construction of another 34 is being planned.
China, India and Russia are expected to dramatically increase their nuclear capacity within the next 15 years, according to World Nuclear Association.
And even after the recent surge, the price of uranium is not a drawback, Mr. Coules said. Uranium only accounts for about 5 per cent to 7 per cent of the input costs of producing electricity, compared with 70 per cent to 80 per cent for coal and gas, he said.
Nor will new uranium mining projects under way or planned lead to oversupply, mining analysts said.
Global uranium production from mines of 102 million pounds accounts for about 59 per cent of the requirements of power utilities, according to Uranium Participation's prospectus.
About 440 nuclear power reactors around the world consumed 173 million pounds of uranium last year.
The production shortfall of about 71 million pounds has been met by inventories, Russian stockpiles and recycling. A portion of the supply gap has been filled by converting the uranium from Russian warheads for use by nuclear reactors.
The so-called "megatons to megawatts" program is expected to come to an end in 2013, but there is growing domestic demand for uranium in Russia, Mr. Coules said. "My opinion is that it could end earlier."
Some analysts estimate that old warheads could account for 11 per cent of the demand over the next decade.
Even so, government agencies forecast the annual demand for uranium by 2020 will increase to between 200 and 220 million pounds, a growth rate of between 1 per cent and 1.5 per cent.
Denison Mines, the manager of Uranium Participation, estimates uranium held in inventories is being drawn down by 35 million to 40 million pounds a year and that global excess inventories are less than 100 million pounds, not including uranium held by the U.S. government.
"It is estimated that a long-term uranium price of between $30 and $50 a pound would be needed to encourage new exploration and bring unprofitable mines back into production," said Jim Mustard, an analyst with Haywood Securities Inc.
Harv