Don Coxe/ Resource Investor.comSt. LOUIS (ResourceInvestor.com) -- At the 2007 BMO Global Resources Conference today, Don Coxe, global portfolio strategist for BMO Financial Group said the commodities bull market is now in its 6th year and there are many more years to come.
“We’ve seen the first six years of this story; we’ve got much more to go,” he said. “Don’t let anyone talk you out of it saying it is yesterday’s story; it’s tomorrow’s story.”
In addition to speaking about oil and gold, which often steal the headlines, he spoke about the craze that has recently hit the uranium market.
The spot uranium price has risen 136% since starting 2006 at $36/lb. So far this year, the price has jumped almost 20% now at $85/lb.
In October 2006, the market digested a supply squeeze when Cameco’s [NYSE:CCJ; TSX:CCO] Cigar Lake was flooded, delaying shipments until at least 2008. Cigar Lake is the world’s largest undeveloped uranium deposit, holding 232 million pounds U3O8 at a grade of 19%. At peak, it is forecast to produce 18 million pounds of uranium per year, supplying 17% of world uranium supply.
On the demand side, 29 nuclear-power plants are being built worldwide with over 100 more in the planning stages. China's plans call for 15 to 30 new nuclear plants by 2020, while India is building seven more plants and has been promised U.S. help to triple its collection by 2020. Japan, already with 59 reactors, plans to build 11 more by 2010.
Coxe noted that Germany recently changed its policy about phasing out its nuclear energy. A compromise agreement was worked out to limit the operational lives of nuclear power plants to an average of 32 years, deferring any immediate closures.
Germany obtains one third of its electricity from nuclear energy, using 17 reactors. Its neighbour France derives 75% of its electricity from nuclear energy from 59 plants.
In the U.S., the Bush administration has strongly pushed nuclear power and backed a 2005 energy bill offering subsidies to utilities to go ahead with projects in a streamlined regulatory process. The Energy Act of 2005 offered loan guarantees, production tax credits and partial reimbursement against regulatory delays.
Coxe said prior to the disasters at Three Mile Island and Chernobyl, the nuclear energy was supported by U.S. administrations from the 50s to 70s, endorsed by former Presidents Dwight D. Eisenhower, John F. Kennedy, Lyndon B. Johnson and Richard Nixon.
At the time, oil was priced at around $10 per barrel so nuclear plants were seen as uneconomical. Now with oil at $60/bbl, government officials are changing their sentiment.
“Now, suddenly, nuclear power is back in demand as a relatively cheap, reliable and emissions-free solution to the world's insatiable demand for energy,” said Elliott H. Gue, editor of The Energy Letter in a recent commentary.
The Nuclear Regulatory Commission says U.S. utilities are looking at building as many as 27 reactors, and it just licensed a $1.5 billion uranium enrichment plant near Eunice, New Mexico, where a groundbreaking ceremony was held in August.
The industry hopes to begin plans for 10 to 30 new nuclear plants in the next two decades. The United States has the most reactors with 103, which provide about 19.3% of the country's electric power.
Gue said the nation's 103 operating nuclear power plants already are operating on dwindling supplies of uranium, and Russian stockpiles are falling fast.
Production from world uranium mines now supplies only 60% of the requirements of power utilities, according data by the Uranium Information Centre. The rest comes largely from government stockpiles, which are rapidly dwindling.
“Uranium concentrate is in short supply, with world consumption of 180 million pounds outpacing annual production of 100 million pounds ... and the shortage is expected to get worse as new plants come online,” he said.
Coxe said nuclear energy has Russian President Vladimir Putin to thank for much of this reversal. After Russia’s freeze in natural gas to Ukraine last year, the world took notice of just how dependent it is on these energy sources.
“We just can’t be in a situation were a crisis in the Middle East could produce $200 oil,” he said.
Oil rose to $61.40 today as world powers discussed tightening U.N. sanctions on Iran, the world's fourth-largest oil exporter, after the latest deadline for Tehran to halt its nuclear program came and went unheeded.
At present, 442 nuclear plants are operating in more than 31 countries, accounting for 16% of electrical production worldwide. The International Energy Agency (IEA) predicts that the world's energy needs will rise 51% by 2030.
“Uranium investments are poised to explode. Now is the time to position your portfolio accordingly, and reap a financial windfall,” concluded Gue.