Why Japans reactors are important to Uranium and NXEComments would be appreciated on this. I think it explains why spot price is so depressed and why Japanese reactors are important and why that is all about to change.
I have some thoughts as to why Japan is the key to Uranium price and therefore to NXE as well as all the other junior miners. Mr. Gitzel CEO of Cameco repeatedly mentions this but until recently I was not clear why that is so. Here is my reasoning and I would like some feedback on whether my arguments hold water.
The key is NOT the bulk supply of U3O8...it is enrichment. I had always thought it was the bulk supply (too much supply for too few reactors) that was the problem. It isn't at all. When Japans plants all shutdown the need for large amounts of enrichment capacity disappeared from the market. The Uranium enrichment industry has moved over entirely to the use of gas centrifuge technology from diffusion technology BUT whereas you could fairly easily shutdown a diffusiion plant, centrifuge plants cannot be shutdown without damaging them beyong repair. These are expensive pieces of kit and no operator would deliberately wreck their plants. So how to keep them, operating and still get revenue. Well you could continue to enrich for the market that is left but there is too much capacity so you would still have to shutdown quite a bit of capacity.
BUT enrichers are smart people. So what they did is to take Uranium tailings that is Uranium that has had some of the U235 already removed and feed it through their centrifuges to bring it back up to the level of natural Uranium which is 0.7% U 235. OK so having done that what are you going to do with the natural Uranium product. There are three choices.
1. Sell it on the spot market
2. Store it
3. Sell it on the term market.
If you choose option 2 there is no revenue - just the added expense of storing it, so no revenue to pay for operating your plant to produce the material and an added expense to store it.
If you choose option 3 then you are locking yourself in for a long term contract to continue to do this. That is locking yourself in to a loss making or at best break-even venture...not good business.
But option 1 means you get revenue to keep your plant running and don'r have to store it.
Which one do you think the enrichers chose and continue to support......spot market sales. I would suggest that $20/lb is about the breakeven point for an enricher to produce natural Uranium from tailings....but much less than what they would get from selling the enriched product which their technology allows them to produce.
THAT is why the spot price is so far below what miners can produce it for. Tailings are almost unlimited but I would suggest not that profitable for enrichers. But they either do that or wreck their machines.Obvious which one you and they would choose.
So where do Japanese reactors factor in here and why are they so important. Simple really...every one of them uses enriched Uranium. When they restart the demand for ENRICHED Uranium increases and TWO things happen at the same time. Firstly enrichers can now use up some of their spare capacity to actually enrich Uranium for reactor use and secondly the spot market supply starts to dry up. So while there may (or may not) be plenty of U3O8 in above ground stockp[iles...there is NOT a large stockpile of above-ground ENRICHED Uranium....you cannot run PWR's or BWR's without enriched Uranium and they make up the bulk of the worlds nuclear plants.
Japan has two fuel fabrication plants and both were shut down after Fukushima so even if reactors had got approval restart earlier they would not have had a supply of fuel stringers to operate them.Approval was given recently for the SECOND plant to start up so now there are two factories in Japan making fuel stringers for their plants. This fuels stringers need enriched Uranium so very soon the orders will start to come in for enriched Uranium from the enrichment facilities and they will take their machines off making spot market natural Uranium to produce enriched Uranium.
Spot market supply will dry up and quickly.
When that happens utilities will have no choice but to enter into term contracts with miners. So far they have not had to do that. Soon there will be no other way to get Uranium unless spot price starts to go up dramatically which it will. That is when Uranium Participation Corporation will start selling its inventory...likely at prices well above $100. The term pricing will then be less than the spot price drving utilities into the welcoming arms of Cameco and other suppliers.
So Japan...and anyone else needing enriched Uranium are the keys to this. By the end of the year Japan will have 9 reactors operating and another 7 are approved for restart by the NRA in Japan. The demand on enrichment capacity will increase and spot material will all but disappear.
That time is coming soon and there will be a rapid and violent whipsaw effect on Uranium prices. As far as spot price goes a source of supply disappears at the same time demand goes up and term contracts roll off.
Any Uranium stock you own will bring in hefty returns if you just buy and hold. Patience will be rewarded.
Malcolm