Uranium Demand to increase as Fukushima Effect wanes
An earthquake led to a tsunami, which led to a meltdown at the Fukushima nuclear power plant in 2011. It was the most serious nuclear accident since Chernobyl in 1986. Japanese authorities and the public agreed, almost in unison, to phase out nuclear power from Japan. That sentiment, however, was never going to last. Nuclear power had gained a prominent place in the Japanese power generation mix, accounting for about a third of all electricity that was generated. Warm summers in 2011 and 2012 reminded Japanese citizens why they need reactors, weakening their resistance to nuclear power. Japan’s new Prime Minister Shinzo Abe ran his political campaign, clearly advocating the need to restart nuclear reactors.
He won a strong mandate, reflecting the fact that many Japanese people favored nuclear power. Hardly a week into the job (he was inaugurated as Prime Minister on December 26), on December 31, 2012, Abe went a step beyond his campaign platform, announcing that new reactors would be built, even if according to more modern standards than those in Fukushima. Indeed, while in the meltdown fears in the immediate aftermath of the Tsunami only the Fukushima reactors – out of 54 – suffered damages; the other powerplants in the country remained largely intact. Abe was adamant during the campaign that Japan could not afford to phase out nuclear power. There can be no doubt, therefore, that Japan will resume its nuclear program under the new Liberal Democratic Party (LDP) administration in Tokyo in sharp contrast to the post-Fukushima policy adopted by Abe’s predecessor Yoshihiko Noda, who expressed the notion of abandoning nuclear power altogether.
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Most analysts in the weeks ahead of the Japanese elections had suggested that uranium prices in general “would benefit from a re-start of Japanese reactors”. In a very concrete way, the new Japanese government’s policy to not only restart existing reactors but to build new ones should generate more optimism, raising prospects for uranium miners. China, meanwhile, is driving what is the world’s largest nuclear program, expecting to complete 100 new reactors by the end of this decade. Bloomberg noted that until last November, uranium was trading at a three year low with an average price of USD$ 40.65/lb, while the average for the year was slightly higher at USD$ 48.72/lb. For 2013, the forecast is that prices could range around the USD$ 55/lb mark. Bloomberg’s uranium price forecast for 2013 ranges from USD$45 to USD$62.60/lb (the three year high being USD$ 73/lb in February 2011). Incidentally, just before Fukushima, the spot price for uranium was USD$ 67.75/lb.
It is unlikely that prices will hit those highs in 2013 as the reactor restart process will take time; nevertheless, the pressure is now aiming up rather than down. The key to the price increase is Japan, however, as a resumption of demand will start to deplete existing nuclear fuel inventories, generating more demand for new supplies to the benefit of uranium miners. Australian based uranium suppliers such as Paladin (ASX: PDN) will benefit from the renewed uranium push from Japan. Crossland Uranium Mines (ASX: CUX) is an Australian promising uranium play which offers low operational costs and high value from its Chilling project in the Northern Territory.
Unconformity-Related Uranium Deposits (URD) have accounted for most of Australia’s uranium production. One of the emerging uranium plays already benefiting from the forthcoming uranium demand surge is Strathmore Minerals Corp (TSX: STM). Strathmore is currently running two late-stage projects in the two mining friendly states of New Mexico and Wyoming. Strathmore has also started to secure important off-take and supply agreements, which confirm the quality of the resource and the favorable long term prospects for the project. South Korea’s ‘Korea Electric Power Corp.’ (KEPCO) has recently signed a joint venture agreement to develop the Gas Hills Project (an open pit mine) in Wyoming.
Strathmore also has a joint venture with Japan’s Sumitomo, known as the Roca Honda (RHR LLC) underground uranium district in New Mexico, for which it recently announced a favorable PEA. Roca Honda is one of the largest uranium projects in the United States. There has also been some nuclear movement in Europe. Lithuania’s government is planning to build a new, Japanese built (Hitachi), nuclear plant to replace one built during the Soviet era in order to reduce its reliance on Russian gas.
Parliament is set to take a decision on the matter by mid May. Lithuanians voted against nuclear power in a referendum held last October but the fact that it was not legally binding and that there was a low turnout suggests it will have very little impact on the decision. Similar motivations – that is the reduction of Russian gas imports – have been driving a nuclear energy revival in Central Europe, despite the fact that Germany has decided not to ‘participate’. The Czech Republic recently held a tender competition for nuclear reactors inviting bids from Westinghouse (USA), Areva (France) and Rosatom (Russia). There are even uranium exploration projects in Europe that are gaining traction. One of these is the Kuriskova Project in Slovakia operated by European Uranium (TSXV: EUU).
The company has already published an NI 43-101 pre-feasibility study, projecting low operational costs, and attracted the interest of France’s Areva, one of the largest uranium and nuclear energy providers in the world, as a major shareholder in 2012. Moreover, there is a revival of nuclear power activity in South America as well. Argentina has two operational nuclear reactors and it is planning to build two more in order to address rising fossil fuel energy costs. Brazil’s utility Centrais Eletricas Brasileiras (Eletrobras), meanwhile, plans to build a reactor and has already secured the necessary financing from the government owned bank Caixa Economica Federal. CEB has already been operating two thermonuclear facilities at its Angra dos Reis power station located some 100 km. west of Rio de Janeiro.U3O8 Corporation, which is developing the Berlin uranium project in Colombia’s province of Caldas. There is no doubt that uranium will be one of the more exciting resources in 2013.