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22. april 2014 06:22 AT

Uranium: 2 divergent opinions on future demand, prices

By Jax Jacobsen
Fission Uranium Corp. CEO Dev Randhawa is fiercely bullish about the uranium market, convinced that a culture of fear and trepidation has kept uranium demand low and uranium prices even lower. Uranium buyers, which include governments and utilities companies, are still hesitant to take on more uranium and are anxiously awaiting a sign from Japan about whether it will restart its nuclear reactors three years after the Fukushima disaster resulted in a nuclear meltdown. The Japanese government announced its energy policy April 11 and indicated that it would give coal and nuclear energy the same prominence as energy sources for the island nation. It remains to be seen, however, if and when Japan will restart its nuclear reactors. Japan has 52 nuclear reactors, but analysts have lowered their expectations in recent months and expect only between 32 and 34 nuclear reactors to be brought back online. "Utilities are not planning for the future, because they don't know what Japan is going to do," Randhawa told SNL Metals & Mining. "If [Japan] doesn't turn them [the reactors] on, there is going to be 100 million pounds of uranium to sell on the market. That's the concern." But governments and utility companies cannot be too cautious, he said. "They can't act like lemmings and they do act like lemmings," he said. "Nobody wants to be a hero." Randhawa said these attitudes are part of the reason uranium prices are so low. "If you look at the math, there's no way the uranium price should be the way it is," he said. "The spot price is US$32, long term it will probably hit US$45. How can anyone be producing at US$70?" he said, referencing the standard cost of production per pound of uranium. He is fully confident that Japan's return to nuclear power will signal a boom period for the uranium industry. "Japan is an export-dominated economy and can't compete when paying 4x the price for natural gas," he said. "With the Olympics coming [in 2020], they don't really have a choice" but to generate electricity via nuclear reactors. "If Japan turns on the reactors, utilities will buy at a higher spot price, making it easier to sell to companies." Randhawa is also encouraged by growing instability in regions where most of the world's uranium is produced. "No one is paying attention to the license of Uranium One being invalidated by the Kazakhs," he said, referencing Kazakhstan's decision to suspend the company's license to operate the Betpak Dala and Kyzylkum joint ventures. Uranium One is a subsidiary of Russian uranium giant Rosatom. "The Kazakhs feel like the way it was done was wrong, and that the Russians stole the asset," Randhawa said. "That's 40% of the world's production. Now Niger is saying [French uranium giant] Areva SA isn't paying their share, so 50% of the world's production is in absolute jeopardy." Slowed production will lead to a lower level of uranium production, he said, which will make prices jump up. China's increasing use of nuclear power is another factor that will bring the uranium price higher, he said. "They're on track to build 70 nuclear reactors; their goal is to source 15% of power from nuclear energy, and they are now producing 1.5% of power from that. Twenty-five nuclear reactors will be up and running next year," he said. Randhawa's optimism about the uranium market is not shared by analysts whom SNL contacted. Nick Carter, a senior vice president of Georgia-based Ux Consulting, told SNL that Japan's opting to turn its nuclear reactors back on will not automatically cause uranium prices to rise.

Source: SNL Financial | Page 1 of 2

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"Obviously, it's a factor, but keep in mind that even if nuclear power resumes in Japan, there will be about 20 reactors or so that will never start or restart again," Carter said. But Japanese nuclear reactors have more than enough fuel in storage for now. "Most of the Japanese utilities keep several years' worth of inventory in fuel, and if 20 reactors remain shut down, they will either have to transfer this uranium to other reactors or they will potentially have to sell out into the open market." It will be some years before Japanese utilities will be actively looking for new fuel, Carter pointed out. Another complicating factor is that uranium can be produced from enriched uranium tailings, which is also keeping uranium prices low. "Base case demand for uranium globally was 172 million pounds," Carter said. Global production was 153.6 million pounds and the secondary supply was 52.4 million pounds, about 206 million pounds total, or 30 million pounds more than global demand. "In 2014, we expect demand to increase a little bit to 178 million pounds, but then on the production side we're expecting about the same level as 2013, meaning 153 million pounds for 2014, though we will see secondary supplies drop off a little bit," Carter said. He expects Japan to restart two to three reactors in 2014, which will not stimulate uranium demand greatly. Electricity prices continue to mount in Japan, and the Japanese government is facing intense pressure especially from the manufacturing industry to find a solution to the energy problem. Prime Minister Shinzo Abe is also under pressure from anti-nuclear groups to find alternative sources of energy. Uranium demand will get no jump-start from the U.S. or EU either, Carter said, as they tend to carry fairly high inventory levels ranging two to three years. One other damper impeding the comeback of a high price for uranium is that nuclear energy is now competing against other energy sources that can produce electricity at cheaper rates, Carter said. "Nuclear power is not so much a baseload source anymore and has to compete a little bit differently in certain markets," Carter said. "Do keep in mind that in a lot of unregulated markets, there are several reactors in the U.S. that have shut down Kewaunee in Wisconsin is a case in point where they produce fairly cheap electricity but are unable to compete with the low cost of shale gas," he said. "There's the thought that that could happen to two or three other reactors in the Midwest, while others are subject to scrutiny."

Source: SNL Financial | Page 2 of 2