High price of uranium prods U.S. mines to life
By Susan Moran and Anne Raup Published: March 28, 2007
LA SAL, Utah: Given its connotations, Pandora is an oddly inappropriate name for a uranium mine.
But that does not seem to bother Denison Mines, the company from Vancouver, British Columbia, that owns it. Denison recently reopened this mine, along with several others in nearby western Colorado, after it had been left dormant during the years when the United States shunned nuclear power.
The revival of uranium mining in the American West, though, has less to do with the renewed interest in nuclear power as an alternative to greenhouse-gas-belching coal plants than to the convoluted economics and intense speculation surrounding the metal that has pushed up the price of uranium to levels not seen since the heyday of the industry in the mid-1970s.
"There's a lot of staking going on," said Mike Shumway, a 53-year-old Vietnam veteran who owns the contracting business that is working the Pandora mine. "It's like the gold rush."
Shumway has personally amassed some 100 uranium claims, including four dormant but potentially rich mines. Some of the claims he bought quietly after less tenacious prospectors could not afford to hold theirs during the long period uranium was out of favor.
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Shumway's eyes light up and he grins as he ponders the fortune he now hopes to gain.
"There's big money in it," he said as he probed piles of waste ore at Pandora with a Geiger counter. "What other work do you know of where you can make millions in 30 days?"
Not many. Prices for processed uranium ore, also called U308, or yellowcake, are rising rapidly. Yellowcake is trading at $90 a pound, nearing the record high, adjusted for inflation, of about $120 in the mid-1970s. The price has more than doubled in the last six months alone. As recently as late 2002, it was below $10.
A string of natural disasters, notably the flooding of large mines in Canada and Australia, has set off the most recent spike. Hedge funds and other institutional investors, which began buying up uranium in late 2004 to exploit the volatility in this relatively small market, have accelerated the price rally.
But the more fundamental causes of the uninterrupted ascendance of prices since 2003 can be traced to inventory constraints among power companies and a drying up of the excess supply of uranium from old Soviet-era nuclear weapons that was converted to use in power plants.
Add then there is the expected surge in demand from China, India, Russia and a few other countries for new nuclear power plants to fuel their growing economies.
"I'd call it lucky timing," said David Miller, a Wyoming legislator and president of Strathmore Mineral, a uranium development firm. "Three relatively independent factors - dwindling supplies of inventory, low overall production from the handful of uranium miners that survived the 25-year drought and rising concerns about global warming - all have coincided to drive the current uranium price higher by more than 1,000 percent since 2001."
Strathmore controls more than three million acres of exploration projects in Canada and previously discovered sources in the United States, primarily around Grants, New Mexico. In its heyday, the Grants "uranium belt" coughed up 340 million pounds of uranium, making New Mexico an even larger producer than Utah or Wyoming. Some politicians in the area hope there will be a new wave of mines, mills and jobs.
Strathmore, with a market capitalization of $300 million, is one of about 400 publicly traded "uranium stock" companies. Most of them, like Strathmore, trade on the Toronto Stock Exchange. Many of the companies are much smaller. Some are essentially shells.
"There's so much money pouring into this sector," said Julie Ickes, editor and publisher of StockInterview.com, which tracks uranium prices and companies. "If you put 'uranium' in your company name, you can look like you're looking for property," she said. "It's a lot of talk."
Globally, 180 million pounds of processed uranium are consumed each year by nuclear power plants. Production worldwide from mines amounts to only 100 million pounds. Roughly 75 million pounds come out of utility company stockpiles. What is actually traded in the spot market is only about 35 million pounds.
Some industry watchers fear the uranium market is entering the bust phase of another boom-bust cycle.
"It's like the tech bubble," James Finch, senior editor of StockInterview.com, said. "We're waiting for the crash."
But others see plenty of room for prices to climb. One is Bob Mitchell, founder of Adit Capital, a small hedge fund in Portland, Oregon. In December of 2004, he became one of the first hedge fund managers to start buying uranium.
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