Uranium's largest price increases Feb to May
(interesting light upon the china trip)
In this exclusive interview withThe Energy Report: (excerpt)
...Can uranium get back to the 2007 levels of $135–$139? Do you believe that's possible?
Alka Singh: That is possible. As we all know, commodity cycles always go to one side or the other, and when they're going higher you see them overshoot. When you see them going down, it's the same. When uranium prices were at $40, there were very few companies that were actually profitable at that level. You saw that Denison Mines Corp. (TSX:DML; NYSE.A:DNN) had to put their projects in Mongolia and Zambia on hold because they required a uranium price of $60 just to break even. So, a $40 uranium price was probably OK for the Russians who are just blending down the HEU into LEU. When I was at Merrill Lynch, before joining Rodman, I used to cover Cameco, which has a pretty low cost of production. At that time they were producing uranium from McArthur River at $17–$18 a pound, which was pretty cheap. But not everybody has these same sorts of projects with such low costs.
So, some of the mines in Kazakhstan, Mongolia and Zambia that were at a feasibility stage at that time had production costs of about $45–$50, and then if you add in the capital-expenditure (capex), they needed a $65– $70 uranium price to break even. It all depends on the circumstances. If demand keeps growing as it is right now and you see oil prices going up back to the $140– $150 level, you will see uranium prices go back to $135– $138/lb.
TER: As you said, we've had a very steep rise, to over $62 today. Is there any chance that we're in a short-term or intermediate-term bubble?
Alka Singh: I really don't think so, especially since the utilities have just started coming into the market. They had been sitting on the sidelines for two years. They probably had enough inventories for 2009 and 2010, and so they did not actually participate in the spot market at all for the long term. But now we are seeing the utilities coming back.
In fact, right now is actually the slow season. December is holiday time, and I don't think a lot of deals are getting signed. If you saw the recent UX Consulting report, you would see that most of the deals were only done on the spot. There were no term deals done this week. So I think things will start picking up early next year when utilities start coming back to the market to get more security and supply for the next five to eight years. They typically do between three- and eight-year contracts. When I was at Merrill, we did this report where we looked at uranium prices for the last 20 years, and between February and May we saw the largest increase in uranium prices. So, if utilities again come to the market between February and May of 2011, you could see another leg up. I wouldn't call it a spike because that's coming from real demand. I'll call it a seasonal increase in demand and an increase in uranium prices.
TER: Alka, it sounds like you do not believe that uranium is a mature industry but rather still a growth industry.
Alka Singh: No, I really don't think that uranium is a mature industry at all. If you look at the cost of electricity generation comparing nuclear to gas, nuclear to coal or nuclear to hydro, you will see that nuclear is the second cheapest source of energy after coal. But with coal you have other problems with environmental concerns. So, the only other alternative is nuclear. Most of the hydroelectric projects in the world have already been built, so it would be very difficult to double hydroelectric generation. It's just not doable. But with nuclear, you can do it, although it's more expensive.
Nuclear power plants are very, very expensive. Permitting is a big risk and very time consuming. Nuclear is the only way you can get more electricity generation at a low cost and be stable enough to provide base load power. I don't think that wind power or any other green power generation is actually suitable for base load. Wind power is great when the wind is blowing and you actually generate electricity. But when there's no wind, the windmills themselves actually draw electricity from the grid. So, that's not good for base load. For base load you need hydroelectric, coal, gas and nuclear—that's it. And with nuclear being the second cheapest, you have to go nuclear.
Alka Singh is a managing director and senior metals & mining analyst at Rodman and Renshaw. Prior to joining Rodman, Ms. Singh was a Merrill Lynch VP covering Canada's metals & mining sector for two years. Before Merrill, she worked as an associate analyst covering gold and base metal companies at Orion Securities. Ms. Singh holds an MBA from Schulich School of Business, York University in Toronto, Canada, and a Bachelor of Science in geology from the University of Delhi in India.
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