Interview with David Sadowski re Uranium

Published on Sunday March 30 2014 (AEST)

David Sadowski is a mining equity research analyst at Raymond James, and has been covering the uranium and junior precious metals spaces for the past seven years. Prior to joining the firm, David worked as a geologist in western Canada with multiple Vancouver-based junior exploration companies, focused on base and precious metals. David holds a Bachelor of Science in Geological Sciences from the University of British Columbia. The Energy Report: David, the uranium price remains below the cost of production for many producers and the forecasts for uranium production are flat. Why are you optimistic about the uranium space?  

David Sadowski: In the current price environment, supply won't be able to keep up with demand growth. That's really the core to the uranium investment thesis. The cost of uranium production spans a pretty wide range, from the mid- to high-teens per pound for the cheapest in-situ leach mines in Kazakhstan, to $50–60/pound ($50–60/lb) for some of the lower-grade, conventional assets in Africa, Australia and East Asia. So we're looking at about $40 to produce your average pound of uranium. That number is climbing on cost inflation and depletion of the best mines. The current spot price is under $36/lb, so many operations are underwater right now. That's why we've seen numerous deferrals of projects and even shutdowns of existing mines, the most significant of which was Paladin Energy Ltd.'s (PDN:TSX; PDN:ASX) Kayelekera at the beginning of February. That's on top of operations that are at risk for other reasons. In just the last few months, we've seen four of the world's largest mines owned by Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) and AREVA SA (AREVA:EPA) shut down on operational and political hiccups. Then you look at where the supposed growth is coming from over the next several years— Cameco Corp.'s (CCO:TSX; CCJ:NYSE) Cigar Lake and China's Husab. Those are technically very challenging, too. All of this is occurring in a world no longer benefitting from a steady 24 million pounds per year (24 Mlb/year) supply of uranium from downblended Russian warheads. In short, the supply side is a basket case. Yet demand growth keeps chugging along. European Union (EU) and North American growth perhaps isn't what it was a couple of decades ago. Pressure from competing energy sources like liquefied natural gas (LNG) in the U.S. is causing some operators to switch off their older, smaller reactors. But reactor retirements are being more than offset by new reactor construction not only in the U.S. and EU, but much more important, in Asia and in Russia. China, India, Korea and Russia are collectively constructing 70 reactors right now.  

TER: Japan and the United Arab Emirates (UAE) just announced a program to cooperate in developing nuclear technology. What's the market significance of that?

 DS: There is a push toward nuclear in many of these nations in the Middle East. Not only do they have pretty strong population growth and urbanization, thus electricity growth is strong, but some of those oil-rich nations have cited a preference to sell their petroleum into the international markets rather than domestically. The UAE is a very large potential source of demand growth. It is constructing two nuclear power plants at the moment and is imminently going to break ground on two more. There are an additional 41 new nuclear reactors on the drawing board in the Middle East. So in the context of 434 operable reactors today, that's a very meaningful amount of growth potential. Demand growth remains resilient, and supply is lagging behind. In just a few years, we think this will lead to a deficit that will quickly grow to crisis levels. That's why we're bullish. Uranium prices have to go higher to incentivize more supply to meet this looming supply gap.  

TER: Why hasn't that happened yet?  

DS: There are just a few forces working against the price. Since the Fukushima accident in Japan, there has been a supply glut in the marketplace. There has been a decrease in demand, with a lower level of buying by some countries, like Germany, Switzerland and, of course, Japan. Additionally, some extra supply was coming out of the U.S. government. There is an extra amount coming from enrichment underfeeding. If you add all that up, there has been essentially more supply than is required, and that puts downward pressure on prices. It's caused the utilities to take a step back from the market.  

TER: So do you think conditions in the market itself will materially improve? What will that look like?  

DS: For us, it comes down to when the utilities start getting involved again. While the utilities have been sitting on the sidelines over the last couple of years, high-fiving each other for not buying uranium in a declining price environment, their uncovered requirements in the future have actually risen quite dramatically. At some point, they have to resume long-term contracting to cover all those needs. Japan is a key catalyst. Japan's reactors were slowly shut down after the Fukushima accident. Right now, none of them are operating. The country's inventories have piled up to probably around 100 Mlb. Many of these utilities have asked their suppliers to delay deliveries of fresh uranium. That material ends up in the marketplace one way or another, so it's having a price-dampening effect. In late February, however, the Japanese government announced its final-draft energy plan. Japan will restart at least some of its reactors to stop spending a ludicrous amount of money on imported fossil fuels. There are other economic and environmental benefits, but it’s the country's trade balance that is really driving the restart push. It's these restarts that we think will spur global utilities outside Japan to resume buying. The signal will be sent that Japan won't be dumping its inventories, it won't be deferring deliveries anymore and, by the way, there is not enough supply to go around in just a few years so you better start contracting again. That's what we think is going to support prices.  

TER: That basic energy plan in Japan is a draft, but there is a lot of public opinion against it. You do think its prospects are good?  

DS: Consensus is that the plan is going to be approved by the cabinet by the end of March. The opposition is highly regionalized, and many pockets of the country are actually very pronuclear. Nuclear, obviously, provides a lot of jobs and generates a lot of tax revenue in these regions.  

TER: Raymond James has revised its uranium supply-demand balance and anticipates a growing supply deficit beginning in 2017. What is the case for investing in the industry today with a payoff so far in the future?  

DS: A shortfall beginning in 2017 doesn't mean prices don't move until 2017. In fact, in a healthy market, they should have moved already. But, again, it comes back to the utilities. They view the nuclear fuel market and their own fuel requirements as a game of risk management. Today, many utilities are sitting on near-record piles of material, so there's not a great deal of risk to the utilities with respect to supply availability over the next couple of years. However, as these groups start to look out beyond that period to 2017, 2018 and so on, they'll realize that it could become more challenging to get the uranium they need. Given that the utilities typically contract three to four years in advance, we're very close to that window where we expect buying to ramp up again and prices to move upward. Again, critically, we expect Japanese restarts to be an important catalyst in that resumption of buying. We expect first restarts in H2/14 with a half-dozen units online by Christmas. So from an investor's point of view, we're already seeing the benefit of this outlook. That's been driving the uranium equities upward over the past couple of months.  

TER: You're forecasting spot uranium prices averaging $42/lb in 2014, but three months into the year, the price is still struggling to break $36. What will drive it over $42? When do you expect that to happen?  

DS: We think the move this year is likely to happen toward the end of this year, as Japanese restarts spark a return of normal buying levels by utilities. The uranium price should really start moving in 2015.  

TER: What indicators should investors look for in watching the uranium price trend?  

DS: One of the best indicators is Uranium Participation Corp. (U:TSX). Since the fund's inception, this stock has been a remarkably accurate predictor of where the uranium spot price is headed. When Uranium Participation's share price is above its net asset value (NAV), the market is baking a higher uranium price into its valuation of the stock because the NAV is calculated at current uranium prices. For even more precision, you can divide the company's enterprise value by its uranium holdings for a rough dollar/pound estimate on what the market is ascribing. So right now, we calculate the fund is implying $40/lb, and that's over $4 above the current spot price. This is by no means a bulletproof measure, but absent a black swan event, history tells us that this could be the destination for the price in the near future.  

TER: You have said you see $70/lb as the price that will incentivize new mining. What should investors do while they're waiting for the price to reach that level?  

DS: Buy uranium equities. It's that simple. We think prices are going higher, so buy uranium stocks well ahead of the upswing.  

TER: Do you have a target time that you expect the price to reach that level?  

DS: We're looking for the price to reach $70/lb in 2016. We forecast prices flat forward at $70 from that year onward.  

TER: Which mining companies are the best investment prospects in this environment? Which are the weaker ones?  

DS: They say a rising tide floats all boats. We think all the uranium stocks are probably going higher, or at least the vast majority of them. But we also believe being selective will provide the greatest rewards. Most investors should be looking at names with quality assets, management teams and capital structures. Among producers, our preferred companies are focused on relatively high-grade projects with solid balance sheets and fixed-price contracts that can buffer them against near-term spot price weakness. After all, we think the spot price could remain weak for most of the balance of 2014. Cheers from G64 conjuring-profits-uraniums-resurgence-david-sadowski .

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Nuclear Industry Hopes Ukraine crisis to boost business in Europe

Published on Saturday March 22 2014 (AEST)  

By Michel Rose PARIS, March 21 (Reuters) - Western players in the nuclear industry are hoping the conflict between Ukraine and Russia could help push countries in Eastern Europe that rely on Russian gas to turn to atomic energy. 

Tension between Russia and the West over the future of Ukraine is spurring the European Union to renew efforts to end decades of dependence on Russian gas, which accounts for about a third of the bloc's supplies. The nuclear industry, whose prospects were hit by the Fukushima disaster in Japan in 2011, has been keen to promote its advantages as a domestically produced source of clean energy by comparison with imported gas and polluting coal-fired plants. "I think it is wise for eastern Europe to be evaluating nuclear, because it forces them to be less dependent on external forces, external politics," Donald Hoffman, president of the American Nuclear Society (ANS), told Reuters on the sidelines of the SFEN nuclear industry conference in Paris. 

Delegates from the French nuclear industry are also keen to export reactors to central European countries such as Poland and the Czech Republic. "It (nuclear power) can bring rethinking in terms of energy independence," said Christophe Behar, director of the French nuclear research centre CEA's nuclear energy division. Moscow has in the past cut supplies to Ukraine when negotiating prices with Kiev, causing shortages for its customers further west, especially in central Europe, which largely relies on Russian supplies to meet its demand. "The first Ukrainian alert had played a role in energy policy decisions in Britain, for example," said Philippe Knoche, chief operating officer at French nuclear reactor builder Areva. 

 Britain went on to award a 19 billion euro ($26.4 billion) contract last year to build the first new nuclear plant in Europe since Fukushima to a consortium made of EDF, Areva and Chinese state-owned companies CGN and CNNC. "In eastern European countries, there could also be a certain number of consequences," said Dominique Miniere, generation and engineering head at French utility EDF. "Gas doesn't have the same place that they wanted to give it six or seven years ago," he said. Gas-fired power plants across Europe have been sitting idle for months because of low demand and competition from cheap coal, which has made it more difficult to cut carbon emissions. NO SHORT-TERM BOOST But other players were more sceptical on the prospects for nuclear energy in Eastern Europe as a response to the Ukrainian crisis. 

"The gas issue is very short-term, I don't see how the nuclear industry could help," said Jean Van Vyve, nuclear assets and projects manager at Belgium's Electrabel, owned by GDF Suez. These countries' existing heating infrastructure, mainly based on oil and gas and not on electrical devices, reduces the attractiveness of nuclear energy, he added. Danes Burket, from Czech utility CEZ, did not expect a major boost for nuclear energy either. "I am not optimistic on that," he said, partly because the EU energy strategy focuses more on supporting renewables than nuclear energy. "And there is enough shale gas in the U.S. and in case of high prices in Europe, it can be imported. But it depends of course on the U.S. export strategy. 

Now they want to use the gas for the U.S.," he added.

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Black Range Minerals Enters Permitting Stage On Hansen Taylor Uranium Project Colorado

Published on Sunday March 09 2014 (AEST)

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Nuclear Power in Japan "Start Them Up "

Published on Friday March 07 2014 (AEST

 The government and voters are putting economics before atoms, opening the way for Japan to restart its nuclear power plants

JUST three years on from the catastrophic meltdown in March 2011 of three reactors at the Fukushima Dai-ichi plant, Japan is taking steps to revive its nuclear dream. A rush to restart some of the country’s 48 mothballed commercial nuclear reactors is well under way. Hundreds of technicians from utility firms are camped out in downmarket Tokyo hotels, working at the beck and call of the Nuclear Regulation Authority (NRA), the country’s new nuclear watchdog, in hopes of meeting new safety requirements. On February 25th the government published a draft energy plan which put nuclear power at the core. It is a sharp reversal of the previous energy strategy, devised by a former government in 2012, eventually to eliminate nuclear power altogether.

The sense of urgency is driven, first, by the mounting costs of doing without the nuclear plants. One by one, nearly all reactors were shut down in 2011-12. Utilities fired up conventional power stations to make up for lost electricity generation. But the cost of importing extra oil, coal and gas has been all the steeper with a weak yen. The trade deficit has climbed, along with electricity charges, particularly for businesses. Should nuclear plants be left idle, the programme of Shinzo Abe, the prime minister, to revive the economy could be in doubt.


Second, the establishment fears that time is running out. A fourth summer without nuclear power—but also without any sudden blackout to alarm the public—might permanently shift opinion against switching the plants back on. Shigeru Ishiba, secretary-general of the ruling Liberal Democratic Party (LDP), says that people have noticed the lights are still blazing and the trains running. So some 15 months after returning to power, the government is ready to take the political risk of restarts. But it is wary of being thought ahead of the agency charged with nuclear safety.

This month the NRA is due to choose which few reactors it wants to fire up first. The most modern reactors and those farthest from the Pacific coast and the threat of tsunamis are at the head of the queue, and may be restarted as early as the summer. A favoured candidate is the plant at Oi, on the west coast of the country’s main island. Two of its four reactors were the first to restart once before, in the summer of 2012, only to close again in September 2013. Public demonstrations in Tokyo accompanied their return to the grid. At the time Japan had not reformed its lax regime for regulating nuclear power.

Now the government hopes that the NRA, more independent than its ridiculed predecessor, will allay the public’s fears. The agency is replacing Japan’s shattered myth of absolute nuclear safety with the concept of “defence in depth”, that is, multiple back-up plans against a series of worst cases. Several reactors, such as those at Hamaoka, located near Tokyo above the Nankai trough, where two tectonic plates collide, may never restart. But the regulator, understaffed and still susceptible to political pressure, faces a daunting task.
As for the cosy “nuclear village” of utilities, heavy industry, bureaucrats and pronuclear media and politicians, it remains largely intact. TEPCO, the operator of the Fukushima Dai-ichi plant, still bestrides the electricity industry, though its credibility with the public is gone. Mr Abe can take comfort from the fact that the anti-nuclear movement appears spent as a political force, despite the backing of a hugely popular former prime minister, Junichiro Koizumi. In the Tokyo governor’s election last month, economic concerns trumped nuclear ones.

The very first reactor will be the hardest to switch back on. After that, once the NRA gives the all-clear, local governments hosting nuclear plants will waste no time. During the shutdown their economies have been deprived of generous subsidies from nuclear utilities. The governor of Niigata, which hosts TEPCO’s Kashiwazaki-Kariwa plant, the world’s largest, is a loud critic of nuclear power. But last September even he gave permission for the utility to press ahead with its plan to restart reactors.

The long-run future of nuclear power is more uncertain. The age of today’s reactors means that new ones must soon be built—a detail the government’s new energy plan skated over. Along with the Tokyo election, a governor’s race last month in Yamaguchi, the southern prefecture from which Mr Abe hails, was closely watched for signs of the mood about new plants. A battle has raged for decades over one to be built in Kaminoseki, a small fishing town in the prefecture. The result, again, was defeat for anti-nuclear candidates. The government has said it may allow three other reactors already under construction before March 2011 to be completed. Just a short time ago, that would have been unthinkable.

From the print edition: Asia

Nuclear power in Japan Start ’em up

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