Market Outlook Journal
by James Finch - Please email your feedback to
jfinch@stockinterview.com
Editor’s Note: Please visit StockInterview’s disclaimer page for full disclosure, forward looking statements, important links and cautions.
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June 15, 2006 |
Rate Your Favorite Uranium Company
Many investors invested in the Great Uranium Bull Market with little rationale behind their speculation. Through the robust rallies of the past two years, it was easy to play the momentum of a newsletter writer’s recommendation. Quite a few did so, often employing the ‘greater fool strategy’ and hoping the last and dumbest investor would provide an exit strategy for the early and nimble speculator.
We have created a 7-point ratings system to help you in determining which companies might be best suited for your degree of investment risk. It’s a guideline you can use, and we’ve not assigned a weight to each item. Nor have we named any uranium companies. This is a do-it-yourself ratings system, which requires but two actions on your part: (a) be persistent in your data-gathering from each company by asking the questions we posed below, and (b) be honest in your assessment when you review this data.
Some of the more speculative, pure exploration plays might abandon their properties by the end of the year or in 2007. Those would include under-capitalized companies with the more speculative properties and who also fare poorly on our ratings system. This ratings checklist would also apply to the pure specs. We began with our article, “How to Choose a Uranium Stock,” featuring Sprott Asset Management Market Strategist Kevin Bambrough and Senior Portfolio Manager Jean Francois Tardif, as a starting point to create a more advanced ratings system for you.
Uranium producers are likely to make a strong comeback as they cross over or switch to more lucrative long-term contracts. But, it could be the smaller, but more solid, uranium development companies which could emerge as the preferred investment vehicles, when the bull resumes the next leg of its long run. Now that we have had a shakeout, with possibly another one on the horizon, it is wise to properly evaluate the important merits of the more serious uranium development companies.
Below are some of the key criteria we are using in our ratings system to objectively evaluate uranium companies covered in our new book, “Investing in the Great Uranium Bull Market: A Practical Investor’s Guide to Uranium Stocks.” Please determine if your favorite exploration and/or development company meets these standards. This is one way of obtaining sufficient data to help you form a snapshot of a company’s prospects.
1. Cash Position. The more cash a company has in its treasury, the longer it can survive. Find out if your favorite company has a minimum of $20 million in cash. More than $30 million gives a company some breathing room. Exploration and development are very expensive propositions. Raising money in a down market is very tough.
2. National Instrument 43-101. This independent geological assessment determines how many pounds of uranium a company’s property hosts. While there are flaws with this system, it can be a workable yardstick. Find out if your favorite company has a minimum of 20 million pounds of a NI 43-101-compliant uranium resource. One should consider historical resources inadequate for evaluation purposes. They may also be misleading and open to hyperbole.
3. Pedigree of Known Deposits. Many of the uranium development companies hold properties, which were once held by the minerals or uranium divisions of major oil companies. Some were continuously held, during the 20-year bear market in uranium by one company or another, and then abandoned during the nadir of the drought. Find out if your favorite uranium company’s primary properties were continuously held until 2000 or a bit longer, but before the spot uranium market reversed. The earlier a company acquired its properties, the greater the probability that company got the best ones. Those who came into the game late often got the crumbs.
4. Drill Databases. Those previous land tenants, the major oil companies, who spent tens of millions of dollars drilling the uranium properties, accumulated drill databases. Some companies got the property, but not the drill databases. Some companies bought the drill database as part of their property acquisition. Find out if the company’s primary properties also have the drill database accompanying it. You may be surprised at what you find.
5. Pedigree of Uranium District. There are several premier uranium districts, which have a history of large-scale uranium production: Athabasca, Australia’s Northern Territories or South Australia, Grant’s New Mexico, Wyoming, Kazakhstan, Niger, and Namibia. Find out if your favorite company has holdings in these districts. Some companies have holdings in multiple uranium districts, which may also become recognized as a wise decision by their management.
6. Management’s Technical Experience. There are three categories of uranium experience: exploration geologist, project geologist and mine operations. Find out how much experience your company’s geological team has in each of those three categories. Those with less than 100 man-years of uranium experience behind them may be lacking. Those companies which have strength in all three categories could become the next uranium producers.
7. Political or Environmental Risk of Primary Assets. Finally, you should assess the risk of the company’s primary assets with regards to its location. Primary uranium assets in North America or Australia’s Northern Territories hold the lowest risk. Those companies exploring or developing in Niger, Namibia or Brazil have slightly higher political risk. Companies with prospects in countries such as the Democratic Republic of Congo, Kazakhstan or Mongolia hold more risk than some investors may wish to tolerate. Areas which forbid mining such as Queensland, Western Australia or the U.S. state of Virginia carry an enormous degree of risk and a Kierkegaardian leap of faith.
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Now you can rate your favorite uranium company and use this ratings system to help you sift through the more than 300 potential stocks in which you might have considered investing.
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June 14, 2006 |
9 Survival Tips for the Market Shakeout Blues
Investors who bought during the top of the frothy commodities rally are now panicking or kicking themselves. Neither activity helps an investor or trader think straight. Below are a few tips in dealing with the current market shakeout.
1. If you believe you invested in the right stock(s), then turn off your computer and do something enjoyable. Exercise is a great stress reliever. The market has already begun its shakeout. If you didn’t get stopped out, or failed to place earlier stops, your best opportunity lays ahead in picking up additional shares at a much lower price. Most of the experts we’ve interviewed tell us the next rally should start sometime between late July and Labor Day. In an attempt to interview the uranium guru James Dines in late May, we were told, “Call back in a couple of months.” That was a helpful clue that the markets were less than exciting. Mr. Dines is often eager to be interviewed, but recently he was not.
2. Do you believe the fundamentals which engendered the commodities boom have changed? If they haven’t, then the bullishness is only taking a breather. We don’t see any fundamental change in the markets. Russia still wants nuclear power, and its oil production may be peaking. China hasn’t announced the end of its nuclear expansion program. India wants to spend $40 billion on new nuclear reactors. If you are invested in uranium stocks, spot uranium jumped another dollar to $45/pound this past week. Hardly the end of the bull market.
3. If you worry about your investment in one stock or another, then stop watching the ticker and focus on the company fundamentals. Is the story still true or has it changed? See #7 A, B and C below.
4. There’s an old cliché that the time to buy is when you feel like dumping everything you own in the category. At the exact moment you want to sell your entire portfolio of uranium stocks, it may be wiser to add to your holdings. This applies mainly to the retail investor. Most of the professionals did dump at the top and are now slowly accumulating the shares of the naïve who waited until the washout to start selling off.
5. Has a major, earth-shattering event occurred? The last bull cycle in uranium ended with Three Mile Island (TMI). The last decent rally in the precious metals markets fell off a cliff after it was discovered Bre-X Minerals had perpetrated a fraud about its gold ‘discovery’ in Indonesia. Something significant and newsworthy always transpires, and it is also far-reaching. That is the trigger. As with TMI and Bre-X, those were the first shots which launched a later chain reaction to end those bull markets.
6. Before pulling the sell trigger, ask yourself: Do I really want to give up these shares to a bargain basement hunter, who will make a killing on my losses?
7. Since most of you will still panic, please review the following basics for any of the uranium companies you’ve read about:
A) How much cash does the company have in the bank? During shakeouts, cash is king. Prescient companies, which completed their financings during the recent and robust rally, are sitting pretty. They can weather the short-term storm and are well-oiled to move forward when this correction bottoms and reverses. Those companies are the strongest ones to check out when this correction looks gloomiest.
B) Has the management remained the same? Unless the top financial and/or technical people blew out the door, in recent weeks, the story probably hasn’t changed much. Companies which built a strong technical team are resilient and powerful. They will move forward.
C) Have the properties come up dry? One of the reasons you invested in a uranium company was because it announced it had “pounds in the ground.” Some companies have more than others. Some went to the expense and trouble of completing a National Instrument 43-101, which independently confirmed the quantity and quality of the uranium resource. If that changed – and the company announced, “Sorry, nothing there after all,” or announced, “Hey, we were kidding,” that’s one thing. If you haven’t heard that, or read a news release announcing that, then the uranium didn’t walk away or move onto a competitor’s property. It’s still there. |
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Next time, when the markets are racing higher, and you feel like you won the lottery, consider this bit of biblical advice. The old joke goes, “When did Noah build his ark?” The answer of course is: Before it began to rain.
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June 12, 2006 |
Even Higher Uranium Prices Ahead This Summer
Will we see a dramatic spike in uranium prices this summer? Some industry insiders have forecast spikes that could send uranium soaring to between $55 and $100/pound. Most were not expecting this to occur during 2006. However, there are several reasons we believe something could crack wide open in the uranium market over the next 100 days.
Let’s take the Russian situation. U.S. utilities have been somewhat lackadaisical about uranium pricing because they’ve been getting Russian uranium on the cheap. Russia’s Rosatom head Sergei Kiriyenko has reportedly told U.S. utilities there will be no HEU-2 deal. Whether this is a ploy to extract a better deal for Russia, or Russia’s announcement it will feed other nuclear-ambitious countries with its uranium is not known.
U.S. utilities are now lobbying the U.S. Commerce Department to end the restrictions on importing enriched Russian uranium. They like the pricing, and are now arguing that higher uranium prices are jeopardizing the nuclear renaissance in the United States.
Because of rising uranium prices, 85 percent of the utilities, which operate nuclear facilities, have formed AHUG (Ad Hoc Utility Group) to terminate the import restriction. If AHUG accomplished its goal, the loser would be USEC, which is now arguing on America’s “overdependence” of nuclear fuel. USEC depends upon the Russian uranium to fund its future enrichment facility program. In a way, this amounts to corporate welfare. USEC is arguing against unlimited Russian uranium.
U.S. utilities are now being fed about 50 percent of their nuclear fuel from decommissioned Russian warheads. Russia is more than a tad upset because the deal they made does not reflect the current spot or long-term price of uranium. Something will likely occur at the G8 Summit in St. Petersburg, Russia on July 14-17. Russia will chair this summit for the first time.
Expect fireworks. On the official G8 website, Russian President Putin announced, “Russia, as the presiding country, regards it as its duty to give a fresh impetus to efforts to find solutions to key international problems in energy, education and healthcare.” It should be noted that Russia is now the world’s second largest oil exporter behind Saudi Arabia. Russia is also hoping to reach a deal in joining the World Trade Organization before the summit opens.
We believe Russia may exacerbate the current tight supply situation in the uranium markets and cause prices to rise after the summit. On June 9th, Russia’s news service Novosti reported the country would start constructing two nuclear power units per year inside Russia beginning in 2007. Kiriyenko also announced Russia would ramp up to four or five nuclear reactors for 2009-2010. President Putin plans to build an international full-service nuclear fuel center in Russia to provide enriched uranium for the growing number of countries wanting nuclear energy programs. It would be hardly likely Russia would provide additional uranium to U.S. utilities in that context.
What about going into Russia’s G8 Summit? It appears uranium trading through June could continue to show a very tight supply situation, where sellers continue to set pricing. A recent posting on the Trade Tech LLC website (www.uranium.info) announced the following:
| A number of buyers concluded transactions during May, which significantly reduced outstanding demand. The impasse between buyers and sellers ended this past month, with buyers apparently reconciling their expectations with recent price increases and current offers. Sellers moved increasingly toward market-related pricing terms for spot delivery, and buyers showed a renewed willingness to accept these offers. Exceptionally strong long-term demand continues to exert upward pressure on the spot uranium price as each pound held by sellers is considered more valuable with every new buyer that enters the market. At least one, and possibly two, uranium auctions are expected in June. Buyers are expected to compete aggressively for this material and TradeTech expects uranium prices to continue their upward climb in June. |
Aggressively competing for tight uranium supplies lends credence to a possible rise through the $50/pound level before the G8 Summit ends.
Another Bad Hurricane Season
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Forecast Parameter and 1950-2000 Climatology (in parentheses)
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New Statistical Scheme |
Analog Scheme |
Adjusted
Final Forecast |
Named Storms (9.6) |
11.0 |
13.3 |
17 |
Named Storm Days (49.1) |
57.4 |
76.1 |
85 |
Hurricanes (5.9) |
6.7 |
8.8 |
9 |
Hurricane Days (24.5) |
28.8 |
40.9 |
45 |
Intense Hurricanes (2.3) |
3.0 |
5.5 |
5 |
Intense Hurricane Days (5.0) |
7.7 |
15.3 |
13 |
Net Tropical Cyclone Activity (100%) |
124.0 |
192.0 |
195 |
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Table courtesy of Colorado State University’s Department of Atmospheric Science. The above table demonstrates the Hurricane 2006 season will provide almost double the storm activity of comparative years since 1950. |
Unusually bad weather drives up energy prices. This summer’s hurricane season may be the equivalent to this past winter’s European gas shortages, which came courtesy of the Ukraine/Russian squabbling and a bad European winter. Many countries began expressing interest in a nuclear energy program after that episode. Another climate event might compel more to head for more nuclear.
Over the past two decades, hurricane watchers have learned to pay attention to Dr. William Gray of Colorado State University’s Department of Atmospheric Science. While based in hurricane-absent Fort Collins, Colorado, his atmospheric studies have proven Nostradamus-like prescient over the past 22 years. Why are we talking about hurricanes? Hurricane announcements tend to drive up energy futures. The number of hurricane days adds pressure to an already tight energy market. Hurricanes start to show up on an investor’s radar during August and remain there through September.
Because of anticipated tight uranium supplies for June utility buying and the anticipation of Russian fireworks in mid July, a fitting climax for a strong surge in uranium pricing might come along with a major hurricane hitting the Gulf Coast. Last year’s Katrina can serve as a reminder that climate changes can impact energy prices, uranium included. Based upon the weather forecasts, we believe in the high probability of an encore to last year’s energy shortages.
While this year’s hurricane season is not expected to match the devastation of 2005, it still highly rates at 195 percent for a Net Tropical Cyclone Activity rating. Last year’s first tropical storm, Arlene, formed on June 9th. This year’s Tropical Storm Alberto formed a year and a day later. Exclude the busiest hurricane season in 154 years of storm-tracking, and this year is expected to rate well above the average hurricane season. The National Oceanic and Atmospheric Administration (NOAA) estimated up to a total of 16 storms, as many as ten hurricanes and up to six Category 3 or higher hurricanes. Dr. Gray’s team estimates similar numbers, but places the brunt of the storms’ impact on the eastern United States.
Storms mainly cause panic. It is the landfall which causes death and destruction. Using Steering Current Predictors, sea surface temperatures, a 52-year statistical hindcast, North Atlantic and Arctic Oscillations and other parameters, Dr. Gray forecast in his recent report, “The odds of a major hurricane making landfall along the East Coast are more than twice the climatological average value this year.” He forecast a 38-percent probability of a major hurricane hitting land along the Gulf Coast this year.
The most chilling comparisons made in the “Extended Range Forecast of Hurricane Activity for 2006” were those which went unremarked by the media. Dr. Gray compared Hurricane Season 2006 to hurricane seasons in 1961 and 2004. Hurricane Carla in 1961 was ranked 3rd worst by barometric pressure at landfall of all hurricanes entering the Gulf Coast. The 2004 hurricane season brought Charley, Frances, Ivan and Jeanne, which were some of the most devastating U.S. hurricanes recorded. Such scenarios would wreak havoc with already strained energy prices, but would be good for the uranium mining bulls. Gray concluded, “We believe that 2006 will be a very active season in the Atlantic basin.” The more active, the more likely a dramatic spike in uranium pricing.
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Will Gulf Coast refineries get hit with the intensity of Hurricane Wilma this season? Some compared Hurricane Wilma to a nuclear blast. |
Nuclear Expansion: A Worldwide Phenomenon
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Yuri Sokolov, Department Head of Nuclear Energy for the United Nation’s International Atomic Energy Agency (IAEA), told reporters this past week, “There is plenty of uranium assuming the industry keeps moving ahead with exploration and new mines.” Sokolov is confident the “identified resources” of 4.7 million metric tons can be mined for less than $60/pound. That’s about 26 percent higher than the current spot price. There was also a warning buried in his speech. He cautioned the major risk to uranium supplies would come from possible delays in moving from discovery to production. Industry insiders understand it can take between 12 and 20 years after a discovery to reach the production stage. U.S. utilities may get more aggressive to secure supplies as this year and next pass by. Their supply deficit for 2008 through 2012 requires a near miracle to match demand requirements.
Sokolov also set targets in the IAEA’s annual Red Book. Depending upon how quickly the nuclear industry expands, more uranium will be required. By 2025, if global nuclear capacity increases to 22 percent, utilities will need 80,000 metric tons per year. An increase to 43 percent would require 100,000 metric tons annually. The Red Book forecast new mines, over the next five years, would add about 30,000 metric tons to the supply inventories. This new capacity would fill the current uranium supply shortage, unless of course the industry is hit with delays. More new mines would also need to come online to keep pace with the heralded nuclear renaissance. Only the most cynical industry insiders would disagree the uranium mining sector desperately needs a dramatic surge in production between 2010 and 2020 to match the explosive growth ahead for this sector.
Nuclear energy “hot talk” should also get a boost in August and September, after the North American release of James Lovelock’s Revenge of Gaia (Basic Books). The 86-year old scientist has led the charge among the world’s environmentalists to get the greens to go nuclear. The international media has sought out Dr. Lovelock’s opinions. Figure we’ll see the same boost in “pro nuclear” media appearances going into the autumn. As the author appears on numerous talk shows, the polls should swing more heavily into building more nuclear plants. That could add further pressure on utilities to quickly secure inventory.
Russia’s desire for a uranium/nuclear monopoly, hurricanes, tight supplies through the summer and the likelihood of yet another energy crisis before Labor Day could spell a significant boost in spot uranium pricing. It would not surprise us should spot uranium trade closer to $60/pound over the next 100 days. Any “shock event” could spike the spot uranium price above that level, and possibly make a run for $100/pound uranium.
Such a level would be unsustainable, of course, but it would be an eye-opener and attract renewed interest in the domestic uranium mining sector. The key domestic contenders for adding new mining capacity in the United States appear to be Strathmore Minerals (TSX: STM; Other OTC: STHJF), Uranium Resources (OTC BB: URRE), Energy Metals (TSX: EMC), UR-Energy (TSX: URE.TO), and Uranerz Energy (OTC BB: URNZ). There are others, but we have not followed their developments as closely.
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E-Book Version debuts on June 18th |
Should the Russians absolutely confirm there will be no HEU-2 deal, U.S. utilities will be driven to closely investigate working relationships with domestic uranium development companies for reliable nuclear fuel supplies. Itochu has established a relationship with Uranium Resources (UOTC BB: URRE), and we expect more of these joint ventures to materialize. As for market capitalizations versus pounds-in-the-ground, during the last uranium bull market (in the 1970s), utility companies were buying uranium companies for about $5-6/pound of uranium. Some of our favorite companies, which host historically reliable and NI 43-101 compliant uranium resources over 100 million pounds, would be severely undervalued under a parallel scenario.
StockInterview’s Investing in the Great Uranium Bull Market: A Practical Investor’s Guide to Uranium Stocks debuts its e-Book edition this coming weekend. The number of investors now following developments in the uranium sector has grown exponentially over the past two years. The mad rush for data about uranium companies and industry developments has catapulted this website’s traffic into the top ten percent of all Internet websites. When the print edition arrives in bookstores and libraries, and is offered through book clubs and other allied groups, the demand for uranium and interest in the nuclear fuel cycle should make another leap forward.
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June 6, 2006 |
Mike Schaeffer’s Favorite CBM Stock
Having read through the May 23rd newsletter “Energy and Capital,” we were astounded to read about Mike Schaeffer’s favorite coalbed methane (CBM) stock, Pacific Asia China Energy (TSX: PCE). The widely read CBM guru aggressively argues PCE will become a major winner for his subscribers, telling his subscribers, “The bottom line: PCE is a dreamboat company…All the pieces are falling into place. The only thing you need to do is sit back and enjoy the ride up.”
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Will PACE exceed Sproule International’s “most likely” scenario of 5.2 trillion cubic feet of gas? |
What pieces is Schaeffer talking about? Prior to his initial recommendation of Pacific Asia China Energy (acronym is PACE; ticker is PCE.V), the stock quickly doubled on (a) anticipation of drilling and (b) Schaeffer’s recommendation of this stock. Those who have closely followed Schaeffer have come to realize he has one of the best eyes for a CBM deal before the company rockets up the stock charts. And they do take off.
The initial drilling amazed Schaeffer (and us). He wrote in his recent recommendation, “PACE examined twenty coal samples from nine seams. When they did, they found that the initial gas content was high … much higher than they expected. In fact, in only 6 days (out of the originally planned 60 days) of drilling, PACE was able to confirm Sproule’s “most likely” estimate of 5.2 TCF. In other words, it’s almost a shoe-in that PACE will be able to extract much more gas than outlined by Sproule.”
Let’s clarify what Schaeffer is talking about. Sproule International is a Calgary-based engineering company, which evaluates the economic viability of many of the world’s CBM projects. Many consider Sproule to be the leading CBM resource evaluation firm. They were among the first to negotiate joint venture research projects with the Chinese, through the state-owned China United Coalbed Methane (CUCBM). TCF is a trillion cubic feet. In an earlier interview with Eric Nuttall, a research analyst with Sprott Asset Management, which has a stake in PACE, Nuttall explained that each TCF might equate to $1 billion in market capitalization (and of course warning of various discounts with regards to developing projects elsewhere, maturity of a project, etc). Using Nuttall’s appraisal method of $1 billion for 1 TCF, and PACE, according to both Schaeffer and Sproule, might have five times that. Well, we’re not going to print anything that could be construed as a price target here, but the math is not rocket science.
Schaeffer appraised PACE’s potential market capitalization relative to Great Eastern Energy, which trades on London’s AIM stock exchange. He wrote, “In comparison, Great Eastern’s in place methane resource is only 1.4 TCF, nearly a quarter of PACE’s resource, and the company has a market cap of more than C$308 million.” (Editor’s note: PCE’s market cap is about 30% of that). Schaeffer concluded, “Simple mathematics suggests that when compared to Great Eastern Energy, PACE is severely undervalued.”
The PACE May 3rd news release, which caught our eye, announced Dr. David Marchioni as the company’s new Vice President of Exploration. The same news release announced Tunaye Sai as the company’s new president. Five days later, the company announced its results. Both Mr. Sai and Dr. Marchioni were in China, during the drill program. It appears Dr. Marchioni, whose name is well respected in Canadian CBM circles and in the United States, wanted to ensure the Guizhou property’s CBM potential had the economic permeability he desired. In our previous interviews with Dr. Marchioni, he repeatedly emphasized the property must have a certain level of permeability for it to be economic. The Boatian-Qingshan property’s (in Guizhou province) CBM permeability level appears have sufficiently satisfied Dr. Marchioni to accept the exploration vice-presidency.
As Mike Schaeffer wrote in his opening paragraph, “Any lingering uncertainties that Pacific Asia China Energy won’t soon become one of the most prominent coalbed methane companies operating in China should be long left in the dust.” That statement carries even more weight when you consider that Schaeffer reaches that conclusion in the context that some of those “other prominent CBM” explorers include Chevron-Texaco and Conoco-Phillips.
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June 5, 2006 |
Making Money on the Global Warming Crisis
Bad weather may be heading our way. Many very smart voices have raised their volume over the number of alarming red flags pointing to a worldwide environmental catastrophe coming in a few years or decades hence. One voice, coming from the sharp mind of James Lovelock is resounding across the world’s media nearly every day. His solution: get more nuclear reactors online and sequester the carbon dioxide emissions as fast as possible.
What’s the alternative? Move to the Arctic Circle, where you may someday bask year around with temperatures pleasantly at 74 degrees Fahrenheit. According to findings recently published in the journal Nature, about 55 million years ago, there was something called the Paleocene Eocene Thermal Maximum (PETM). In this PETM phenomenon, the entire Earth was heated up by a gigantic release of greenhouse gases, like carbon dioxide. Lovelock has insisted we may see that kind of hot later this century.
Now, another brainy man, with whom we have many chats this year, has issued a special 56-page report, entitled “Investment Implications of an Abrupt Climate Change.” Co-authored by Market Strategist Kevin Bambrough and Eric Sprott, Chief Executive and Portfolio Manager of the world-famous money management firm which bears his name, they present a compelling argument as to why and how global warming and climate change is going to dramatically impact our financial world. You are well advised to read
it. The concise and hard-hitting long-form essay is now available on the front page of our website: http://www.stockinterview.com.
Take Your Pick: Nuclear Energy or Cheap Arctic Land |
Aside from optioning to buy vast tracts of land near the Arctic Circle, as Dr. Lovelock’s conclusions force us to briefly consider, what can we do to protect our finances? Global warming, climate change and an apocalypse soon to dawn on the horizon are probably too much reality for the here and now. But, what will you do ten to thirty years from now? This past week, we interviewed Julian Steyn, author of A Brighter Tomorrow, which he co-wrote with U.S. Senator Pete Domenici. A conservative and rational man, even he admitted in an email, “I am afraid I do agree with his (Lovelock’s) concerns.”
If one finds logic within the statistical analysis presented by the United Nations Intergovernmental Panel on Climate Change (IPCC), a rational mind would want to start protecting his finances today in order to ensure future survival for his family and lineage. Esteemed scientists have picked their way through mountains of statistics, charts and projections about what is happening with melting glaciers, rising temperatures, higher sea levels and so forth. They do not like what they see, they are not alone, and the better minds are not endorsing wind farms or solar panels as “the solution.” They see nuclear fission reactors as mandatory, and the faster these go online, the less we will later have to sweat (literally).
Eric Sprott and Kevin Bambrough have laid out a possible solution, a cogent thesis as to why we must stop fooling around now. They didn’t write the report to alarm and cajole you to lynch the next environmentalist or anti-nuke whom you come across. Messrs. Sprott and Bambrough provided a blueprint of what must be done by governments and decision-makers. More importantly, they have given us extremely provocative advice on HOW to protect our finances during the brewing crisis.
Remember, it won’t just be some meteor hitting the earth (although that might happen, too). Global warming is tantamount to boiling water on your stove. First, it gets warm, then warmer and warmer. Eventually, it gets hot. Then, the water boils. In other words, the catastrophe will brew for a while, causing political and economic instability, and a host of other ills, probably better described in biblical terms. Most of us, unfortunately, will wait until the next Hurricane Katrina is a few miles down the road before waking up.
Through the first half of the report, the authors cover global warming and climate change, in just about every way imaginable. Messrs. Sprott and Bambrough found nooks and crannies which may alarm you. Did you know the world’s largest aquifer, the Ogallala aquifer in the United States, is drying up because the glaciers, which created this aquifer, are receding? Fresh water is already in short supply for one-third of the world’s population. We may be surrounded by water, but could lack a glass of fresh water to drink. Ask the Saudis why they are building desalination plants as fast they can. Imagine if those arid conditions prevailed across more than 90 percent of the landmass of earth.
What happens as the earth’s temperature goes up? Increased urbanization, growing GDPs and demand for all the niceties that come with “civilization” have a price: more CO2 emissions. Deadly CO2 emissions, which raise the earth’s temperature, poison our air and kill our plants (and us), are very likely going to turn this earth into a potboiler before the century ends.
Nuclear Expansion Needs More Uranium |
“This IS the perfect storm,” Kevin Bambrough warned, not as the abused cliché the term has become, but as an angry voice demanding decision-makers take to heart the gravity of CO2 emissions. “We need more nuclear reactors now,” he told us. He directed us to environmentalist Patrick Moore’s contention that the U.S. should reverse its energy source mix from an 80-percent dependence upon fossil fuels, relying instead upon nuclear energy for 60-percent of our electrical power supply.
Under the former Greenpeace co-founder’s scenario, Bambrough extrapolated the World Nuclear Association (WNA) projections for 2030. Nuclear power demand is then expected to soar from the current 368 Gw, produced by the world’s 441 nuclear reactors. He computed, using Moore’s premise of a 60-percent nuclear-reliance, that nuclear reactors would produce 18,900 Twh of the total power demand in 2030, which the WNA estimates might reach 31,500 Twh. To produce that much electricity, Bambrough calculated that by 2030, nearly 2700 nuclear reactors will be required across the planet. Envisioning the “potential” of a 600-percent increase in nuclear reactors online, about 25 years from now, Bambrough also calculated how much uranium would be required to fuel those reactors.
According to Bambrough, current global uranium mining production rests at about the 100 million-pound level. By 2030, if nuclear energy expands as Moore insists it should, then the world’s utilities will require on the order of about 1.3 billion pounds every year. With regards to a planetary build-up of nuclear energy, Bambrough wrote, “The supply of uranium may well be the most limiting factor.”
This may become the new case for a sustained rally in the spot uranium price. Bambrough wrote, “Much higher uranium prices will be required to attract enough investment capital to meet the growth in demand.” This has already begun, as uranium prices have skyrocketed for the past six years. Long-term uranium recently traded as high as $46/pound, exponentially higher than the spot price of $6.40/pound in late 2000. Bambrough is correct in his conclusion. Building an underground uranium mine costs far more than it did in the glory days of uranium in the 1950s. Environmental regulations force miners to spend more and take longer in constructing any uranium-producing facility, including an ISR operation.
“Marginal mines will become price setters,” wrote Bambrough. This helps explain why the Sprott Asset Management funds have invested heavily in companies such as Strathmore Minerals (TSX: STM; Other OTC: STHJF), Energy Metals (TSX: EMC) and others. When we first interviewed Strathmore Minerals Chief Executive, Dev Randhawa, in June 2004, he told us his strategy was to capitalize upon a sustained rally in the uranium price by acquiring properties which were uneconomic at the sub-$20/level. His strategy has rewarded shareholders and continued to do so with each uptick in the spot uranium price. If Bambrough’s conclusion is accurate, the junior uranium developers could very well become the Internet high-fliers. That conclusion was reached by newsletter writer James Dines, this past November, and repeated numerous times in multiple reports by others.
“Large low-cost producers may be able to reap Middle East-like oil profits for decades,” wrote Bambrough. If the spread between production costs and spot uranium keeps widening, the smaller uranium companies are going to hit it big. Those companies, which postponed uranium mining, will be selling their uranium production at the kind of profits-to-production spread ExxonMobil or ChevronTexaco now enjoy.
Rising uranium prices are probably more of an irritation for fuel traders than the utilities, who worry about construction costs. The actual fuel cost to operate a nuclear power plant borders on the absurd. Bambrough wrote in his report, “Fuel costs (for nuclear) are merely 4.5 percent of total costs, even with uranium at $40 per lb. If uranium rises to $100 per lb (a further 150 percent increase), the cost of nuclear power would only rise by approximately 6.75 percent.” Fuel costs for coal and gas are 35 and 73 percent, respectively. And they release massive doses of CO2 into the air.
What else can be done aside from a worldwide, unanimous endorsement of nuclear energy? There may still be difficulties ahead. Lovelock told us the CO2 emissions problem should have been addressed 50 years ago. It takes between 50 and 100 years for the atmosphere to cycle through those emissions.
The Sprott report co-authors concluded there will be supply problems for food, water and energy. They envision problems with national security, soaring grain prices, and greater investments needed to provide water and energy to those who aren’t buried ten feet deep in their indebtedness. They foresee a currency collapse as central banks flood the money system to provide liquidity. And, of course, gold will resume the role it has always held during times of overpowering economic calamity.
Is this too much reality for you? Should we just wait a while and see what transpires? We might not be so lucky. Some experts, such as the Chief Claims Strategist for Swiss Re, wrote in a March 2006 CERES report, “Global warming has accelerated from a problem that might affect our grandchildren, to one that could significantly disturb the social and economic conditions of our lifetime.”
In other words, Messrs. Sprott and Bambrough are correct in their assumptions and conclusions. The time to get moving is today, not thirty years from now.
For a second opinion, before completing this column, we forwarded the Sprott report to David Miller. He wears many hats, including a consultancy to the International Atomic Energy Agency, third-term Wyoming legislator, president of Strathmore Minerals (TSX: STM) and a walking encyclopedia on uranium, geology, nuclear power and politics. He responded quite bluntly, “The fuel of the 19th century was coal. The fuel of the 20th century was oil. Both have run their economic course. Uranium is on its way to becoming the energy fuel of the 21st century. The crescendo of countries clamoring for nuclear energy has been growing louder in each year of this new millennium.” Perhaps, we may yet see Moore’s energy mix come to pass, or at least dramatic growth in the nuclear sector to more closely approach his targeted percentage level.
One key question remains unanswered, during our two-year investigation into uranium and nuclear energy. Sure, we’ve gotten a lot of answers, but we remain unconvinced. No one has satisfactorily answered this question: “Will there be sufficient supplies of ‘already mined uranium’ and current mining production available to the world’s nuclear reactors to meet the anticipated global demand for electricity?” The make-break word in the above question is “available.” Uranium is nearly everywhere. There are about 1.7 billion pounds of ‘already mined uranium’ in the world’s inventories. But will there be enough uranium made available to the utilities when the time comes?
If there is not, today’s spot uranium price could look comparable to gasoline prices, circa 1965, at some future point.
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