The Recycling of Crazy Ideas – Uranium Supply Shortages

Uranium-hexafluoride-3D-vdWOnce upon a time, two very warlike tribes decided to make the world a slightly better place, by turning at least some of their swords into ploughshares. Actually, they didn’t even make ploughshares, whatever those are, but fuel that could produce electricity. Now, everyone knew that, eventually, the supply of this fuel from the old swords would run out. In fact, everyone, from the suppliers of fuel to its users to the people who invested in companies that make the fuel, knew the exact date on which this source of fuel would run out. As the date approached, and then passed, though, a few “analysts” scurried out to tell people who weren’t really paying close attention that there was a secret, money-making angle to play.

Of course, what I’m describing is the end of the Megatons to Megawatts program, a project that took highly enriched uranium from Russian nuclear weapons and down-blended this material to make a large amount of nuclear reactor fuel. Lately, we’ve seen a number of sources of investing news publishing articles that suggest there will be a huge upswing in uranium prices soon, because of the massive supply shortfall caused by the end of Megatons to Megawatts. This is an old and crazy idea that has popped out of the woodwork a few times, and just because it is back again doesn’t make it any less wrong.

While I was working at Byron Capital Markets, my colleagues and I looked at the whole question of uranium supply and demand. We did something that seems pretty obvious, but that isn’t trivial. We looked at all the operating nuclear reactors in the world, and all the planned reactors. We added up the uranium the operating reactors use, if they continued to operate, we added up all the new uranium required if the planned reactors all come into operation on schedule, and we added up all the refueling needs of any new reactors over time, through to 2020. Then we looked at the licensed and potential output of all operating uranium mines and mills, and the outputs of all the funded and planned mines through to 2020. We removed the supply from the Megatons to Megawatts program, and we examined some unconventional supplies of uranium even though these were really small. The result was that there was no massive shortage of uranium coming, at any point in our study period. And because of the operating costs of the likeliest producers, there was no massive price spike coming, either.

There are no possible positive demand shocks in the nuclear industry. It is possible to have a few or many reactors get shut down, say because public sentiment swings wildly and foolishly following a disaster in Japan that resulted from poor disaster planning and the old equipment used inside an antique nuclear facility. But no nation is suddenly going to pull a curtain aside and show the rest of the world 20 new nuclear plants that we all knew nothing about. If some nation decides today to go on a nuclear binge and build those 20 reactors, we have 10 years to get ready for them.

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It is possible to experience negative supply shocks. On the 13th of March, Cameco finally announced production from Cigar Lake, after a series of issues. Other uranium mines occasionally get shut down because of political or economic forces. Uranium suppliers do have some pretty smart people working for them. If they see a chance to shut down a small mine that is making only a marginal profit and increase the spot price of uranium without inconveniencing their customers by impeding deliveries, you can bet that they will look at that option. Maintenance and upgrade, anyone?

I conclude that there isn’t likely to be any massive surge in uranium prices anytime soon. There is likely to be a long-term increase in price that will move us through $40 and back towards $50. If your long-term investment plans include low-cost uranium miners, you are probably doing the right thing. There may even be some noise that looks like surges in pricing, so play the momentum on those if you’re brave enough.  But there are other more interesting critical materials to me, and over the coming weeks, we will tell you about some of them.


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Jon Hykawy

About Jon Hykawy

Dr. Hykawy is President of Stormcrow, a Toronto-based business consultancy and independent research firm. He was previously Head of Global Research with Byron Capital Markets, specializing in the economics of critical materials such as lithium, vanadium, fluorspar, graphite and the rare earths. He has extensive experience in the solar, wind, and battery industries, having conducted significant research in the area of rechargeable batteries (including rechargeable alkaline, lithium-ion and flow batteries) and wind power technologies. Jon began his career in the investment industry in 2000 when he began work as a research analyst broadly covering the technology sector. His focus was later refined to clean technologies and alternative energy companies, and his current areas of interest continue to be dominated by the issues of supply of, and demand for, critical materials in a variety of global supply chains.
  1. There are no possible positive demand shocks in the nuclear industry. It is possible to have a few or many reactors get shut down, say because public sentiment swings wildly and foolishly following a disaster in Japan that resulted from poor disaster planning and the old equipment used inside an antique nuclear facility. But no nation is suddenly going to pull a curtain aside and show the rest of the world 20 new nuclear plants that we all knew nothing about. If some nation decides today to go on a nuclear binge and build those 20 reactors, we have 10 years to get ready for them. ….well isn’t this interesting and a completely different perspective. I was first “turned on” to uranium as an investment here on InvestorIntel and truly appreciate the honest approach to the information here. great article, hope to see more.

    • Thanks for the comment. Will do my best to keep commentary in the critical materials space at least mildly rational!

  2. Does Mr. Hykawy like any of the uranium juniors?

    Which other natural resource sectors does Mr. Hykawy like?

    Thanks for article. Well written.

    • Peter, if/when Stormcrow publishes on uranium, I’ll be in a better position to back up a positive recommendation on any of the juniors. But you would be correct in assuming I like those that have very low operating costs. That could include very high grade deposits, or those that use in situ recovery techniques. Both are likely to keep their costs low, which is the best way to survive this uranium market.

      I’ve also published on other areas that I like. Fluorspar is interesting to me, because of the need for hydrofluoric acid as feedstock to the growing demand for refrigerants out of China and India, as well as because of Mexichem’s stated plans to move downstream and limit sale of feedstock to the chemical companies that make hydrofluoric acid and refrigerants, previously using Mexichem’s fluorspar.

      I also like tin. Tin, along with a little silver and even less copper, makes up electronic solder. More than 50% of worldwide tin production now goes into solder, but the growth in electronics demand is outpacing mining production increases, and the price has already gone from $5/kg to $22/kg. We can expect it to get worse, and if there isn’t a change, for tin to actually be in dramatic undersupply later in this decade.

      There are few other areas, but I have to leave myself some other things to write about!

      • Very informative article as always, Jon.

        I have been trying to reach you since early this year but I don’t have your new number. Please call or send me an e-mail. Need to talk to you about alternative energy.

  3. Pingback: Bitcoins are dead, Rare Earths are ‘alive’ and FDIC vs. Libor to re-build trust for the 'little people'? | InvestorIntel

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