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Thursday, August 23rd, 2007
Should We Worry About Uranium at $90/lb?
By Keith Kohl
Baltimore, MD-This hasn't been the greatest summer for uranium's spot price. After reaching $136 a pound in July, spot prices fell to $90 recently. This drop, however, shouldn't be too alarming when taking in the entire picture.
What a difference a few weeks can make.
Since July, uranium's spot price has fallen aobut 29% to $90 pound. And very day since that drop, I've heard the same thing over and over from my readers...
"It was a good run and all, but aren't uranium producers about to get pummeled. Is this the time to throw in the towel on our uranium plays?"
I would think twice before doing so.
The reason is simple. We've been expecting this correction for years. Uranium prices have risen dramatically over the last few years. Losing 30% is nothing compared to the long term gains that yellowcake has made.
Sure, looking at a two-month chart of uranium's spot price will make you cringe a little. But don't forget this...
Uranium was sold in 2002 for under $8 a pound! I'm pretty sure that most of us would take over a 1000% gain over five years.
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So what exactly happened a few short weeks ago?
Spot prices fell to to $90 a pound after the Department of Energy's auction last week, which put up approximately 200 metric tons of uranium hexafluoride. Uranium hexafluoride is a type of processed yellowcake (U3O8).
But during this short term correction, we can still remain incredibly bulish on yellowcake. We can blame nuclear energy for that.
The Nuclear Demand for Electricity
According to the World Nuclear Association (WNA), a total of 78,458 tons of U3O8 is needed for the 438 nuclear reactors currently operating around the world in 2007.
The problem, however, is that global uranium production is still falling short of that amount. Last year, mines only produced about 39, 429 tons of uranium (only about 46,499 tons of U3O8). The gap between supply and demand is going to continue to widen over the next several years.
It isn't surprising that China and India are leading the pack. India's demand for electricity is expected to more than double by 2015.
In 2007, the construction of 288 nuclear reactors were planned, proposed or already underway. Over 45% of those were located in either India or China. By 2010, India will have six new reactors completed.
China is much more ambitious. More than 110 nuclear reactors were planned or proposed this year. The country hopes to quadruple their nuclear capactiy by 2020.
But where does this leave us? Since the spot price has fallen so much in the last weeks, are these uranium producers still worth our time and money?
Absolutely.
Let's take a look at uranium producers for a second. The current $90 per pound spot price for uranium is more than double their mining costs, which are estimated to reach up to $40 a pound. So these companies will still be able to shine despite this correction.
Just consider the future role that nuclear power will play over the next few decades. It's the logical solution to our energy crisis. As oil and other fossil fuels become too expensive to extract, we're going to need a new source of energy on a massive scale.
Until next time,
Keith Kohl