Tuesday, December 7, 2010

Uranium Prices Surge on China's $511 Billion Investment in Nukes (BHP; CCJ)

We had the China reactor build-out story last week in "China spending $511 billion to build up to 245 nuclear reactors".
There will be a scramble over the next few years that will come to resemble madness.
And a lot of money will be made.
Here's Money Morning Australia:
...And China's not the only country eager to join the nuclear party. The list of nations with the largest number of planned and proposed reactors includes India with 60 on the drawing boards; Russia with 44; the United States with 31; Ukraine with 22; and South Africa with 15.

The new plants will consume 32,900 tons of nuclear fuel according to a Morgan Stanley (NYSE: MS) report. That's almost half of the demand from the world's 443 commercial reactors.

China Stockpiles Uranium

For its part, China will be importing a lot more uranium. China will boost its imports by a factor of four to 50-60 million pounds a year by 2020, or 25-30% of total global demand, which stands at 190 million pounds in 2010, according to forecasts from UxC Consulting.

China only produces about 2 million pounds a year domestically, forcing the country to move aggressively to secure uranium supplies. State nuclear groups China National Nuclear Corporation (CNNC) and China Guangdong Nuclear Power Corporation (CGNPC) have signed long-term supply agreements with foreign miners, as well as pursuing joint ventures.

  • France's Areva (PINK: ARVCF) will supply 52 million pounds to CGNPC by 2020.
  • Canada's Cameco Corp. (NYSE: CCJ), the world's larges miner of yellowcake, will sell CGNPC 25 million pounds along with 23 million pounds to CNNC over the next 10 years.
  • The state-owned nuclear power company in Kazakhstan will supply CGNPC with 63 million pounds by 2020.
China has stockpiled 17,000 tons of uranium over the last five years and may buy at least 35,000 tons more over the next decade to ensure the country has adequate supplies, Max Layton of Macquarie Bank Ltd. told Bloomberg.

China has been buying on the spot market, as well. Its imports so far this year have been equivalent to 20-25% of global uranium consumption, Layton told The FT.

These contracts will tie up considerable quantities of uranium, meaning there will be even less uranium for the rest of the world players.

"What seems to be happening is that it seems China is getting ahead of anybody else and building up a strategic stockpile before the Americans, Japan or Korea need to do their restocking," Ralph Profiti, an analyst at Credit Suisse Group AG (NYSE: CS) in Toronto, told The FT.

China's buying binge has contributed to a sharp rally in spot uranium prices. Spot uranium is now sitting at $61 a pound, a 50% improvement since June when it hovered at just over $40 a pound

"The Chinese bumped long-term forecasts for their nuclear build-out and although there is actually no physical demand it has totally changed the psychology," Laramide chief executive Marc Henderson told Bloomberg. "There has been a major movement in the spot price since September and I don't think anybody foresaw it."

Production shortfalls, which have forced miners to buy material on the spot market to meet their long-term contracts, have also tightened the market.

Supplies Boosted by Megatons to Megawatts

The supply profile for uranium is unique. In the short run, there appears to be plenty of uranium to go around. The long run, though, is another question entirely.

Since peaking at $136 a pound in July 2007, uranium prices tumbled 69% as companies boosted production, according to Saskatoon, Saskatchewan-based Cameco. At least 27 mines in nine countries began operating in the past 10 years, adding as much as 65 million pounds a year to global output, according to the firm's data.

But current uranium demand outstrips mined production by about 100 million pounds per year. The balance of the uranium comes from aboveground supplies - utility stockpiles, nuclear breeders and surprisingly, nuclear weapons.

After the Soviet Union imploded, the U.S. - under a pact known as Megatons to Megawatts — agreed with Russia to turn weapons-grade material from 20,000 warheads into nuclear fuel for use in commercial reactors.

The military materials supply about 50% of U.S. reactor fuel, according to the WNA.

"The United States is dependent on Russia for a significant portion of [its] nuclear energy. I don't think a lot of Americans know that," Robert E. Ebel, a nuclear analyst at the Center for Strategic and International Studies told the Council on Foreign Relations.

World uranium supplies were more than adequate as the Soviet-era warheads were scrapped, contributing to the drop in prices. But the agreement will run only through 2013 and soon after that, a serious supply shortage could develop....MORE
 The coming madness has precedent, from American  Heritage magazine:
U-Boom on the Colorado Plateau

Gold is where you find it, goes the old prospectors’ saw. But uranium, according to at least some members of that grizzled and vanishing breed, is where you dream you’ll find it, where your bones and your hunches tell you it hides—no matter what some government geologist or petroleum industry big shot thinks. Finding gold may be equal parts luck and science, but locating uranium is an art that asks you to close your eyes and picture the earth as an immense layer cake that has been dropped, fractured, folded, and upended: in a few of those layers you will find traces of something very sweet.
That, at least, is a paraphrase of how Howard Balsley and Cecil Thompson saw it last year from Moab, Utah. They were in a position to know. Balsley, age ninety-three, who once sent radium to Madame Curie, was the acknowledged grandfather of all uranium seekers and finders; and Thompson, a robust man of eighty-eight, was with Balsley one of the few successful survivors of the greatest mining rush in American history—two of the few who took more money out of the earth of the Colorado Plateau than they put in.

It is still not mythically comfortable to accept the fact that the biggest bonanza of them all was not the Mother Lode or Cripple Creek or the Klondike, and was not in nineteenth-century gold, but that uranium was the metal and that the rush took place in the twentieth century on the 120,000 square miles of the Colorado Plateau, where the four states of Utah, Colorado, Arizona, and New Mexico share ownership of a multilayered uplift of mostly sedimentary rock that in times past was the bottom of an ancient sea. That here, in perhaps the most remote and beautifully desolate region of the nation, more man-hours were spent hunting uranium than were spent seeking all other metals since man first crafted himself a pick and shovel, according to an Atomic Energy Commission estimate.

The Atomic Energy Commission was certainly the best qualified body to make that estimate. Probably the only body qualified to do so, for this most curious of all mineral rushes was distinguished chiefly by the fact that it was promoted by the federal government, supported by the federal government, and controlled by the federal government through the AEC. Yet even though the control was absolute and the operations largely secret, there was a gentle paternalism about it. If it was by the government, it was at least for the people; through a sliding scale of subsidy and guaranteed price supports, the average American was invited to participate....MORE