EDITOR: | August 4th, 2013

Timely reminder of uranium’s fundamentals; Potash moves in former Soviet states; Gold’s surprising liquidity

| August 04, 2013 | No Comments

Another analyst report, another forecast on uranium prices. But the decision by London-based Capital Economics to start tracking uranium is significant: while their forecasts are more constrained that most (they predict $50/lb by the end of 2014 and $60/lb by end 2015) the very fact that the firm has begun taking a close interest in uranium backs up the growing opinion that uranium’s darkest days are near an end. (Of course, the latest “dark” period is only relative: in 2001, yellowcake was fetching only $7/lb.)

However, the report is a timely reminder of the fundamentals of the uranium industry — fundamentals we often assume everyone knows and remembers. For example, much of the writing about uranium and demand concerns China (count me among the guilty on this count). True, that is where the action is regarding new capacity, but the Capital report reminds us that, together, the U.S., France and Japan together account for more of the world’s nuclear capacity than all the other countries combined. And Russia, South Korea, Ukraine, Canada and Germany all have more nuclear capacity than does China (at least for now).

China is only the ninth largest uranium producing countries. Kazakhstan is in the lead (heading for 20,000 tonnes a year) and its output is more the double that the second place-getter, Canada (which is still to reach 10,000 tonnes a year). Australia, Niger and Namibia are the next in the rankings.

With individual companies, there is also a clear front-runner. The McArthur River mine in Canada, owned by Cameco, has double the output of the next in line, Australia’s Olympic Dam. The Canadian mine accounts for 14% of world production.

But when it comes to resources, Canada comes in at fourth. Australia is well in the lead, followed by Niger and Kazakhstan.

Looking into its crystal ball, Capital Economics lists four key reasons it believes uranium prices will rise. One is that Japanese demand will rebound as more reactors come back on line; two, Chinese demand will surge; three, nuclear will increasingly appeal as countries look to cap carbon emissions from power generation; and, four, there simply won’t be enough uranium available unless prices rise and that makes it possible for new mines to get going.

But Capital sees uranium as facing uncertainties greater than for other commodities. This is due to the possibilities or nuclear accidents and the prospect that supply of converted uranium for warheads may not fade as soon as everyone is expecting. After all President Obama has recently asked Russia to join Washington in retiring more nuclear weapons.

POTASH: The former Soviet Union has also been featuring in the potash scene with the move last week by Russia’s Uralkali to cut ties to its former Belarus cartel partner. I have come across an article published in The Financial Times well before this development that throws some further light on Uralkali’s operations.

The article noted that Uralkali had been making money “hand over fist” and revenues last year fell only 6%, to $3.95 billion. (We’ve noted that Uralkali’s production cash costs are under $100/tonne). While potash prices were down, the company was cushioned by the fall in the value of the rouble. The company has also spent big expanding its capacity: that is up by 3 million tonnes a year over the past two years (from 10 million to 13 million). Uralkali has committed $600 million to getting that up to 19 million tonnes a year by 2021.

Meanwhile in another part of the old Soviet empire, Kazakhstan Potash Corp (ASX:KCP) is spending $150 million to buy the Samitola potash project in the Central Asian republic. It is located 3,000km from the Chinese border, but the aim seems to be to target China as a customer (which is where Uralkali is headed, too). The deposit has been owned by private interests in Hong Kong so there’s not much information available but one source puts the resource at 8.5 billion tonnes and the projected output at between 700,000 and 1 million tonnes a year. It was extensively explored by Soviet geologists although their interest was mainly in borate (which is expected to be a by-product if potash mining begins).

KCP was formerly known as Fortis Mining and already has two potash projects in Kazakhstan.

GOLD: The yellow metal is a high quality, liquid asset. So says the World Gold Council in its latest publication. This may come as a surprise to gold sceptics who swallow the “barbarous relic” argument, and the other anti-gold charge that the metal is a very small market. But that does not take into account all the gold-based derivatives. In fact, notes the council, gold trading in the first quarter of 2011 was at the rate of $240 billion (yes, billion) a day, a turnover higher that such liquid entities as German Bunds and U.K. gilts.



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