Could Spot Uranium Prices Reach $100/pound?

Energy Guru Bill Powers Forecasts Uranium Shortfall in Three Years. Bill
Powers focuses on investment opportunities in the Canadian energy sector,
mainly independent oil & gas companies and now uranium companies. We
talked with him and he thinks uranium could reach $100/pound this decade.
investing, stocks, uranium, mining, oil, gold, utilities, nuclear energy, commodities, bull market, labor shortage, drill rigs, exploration, copper
Energy Guru Bill Powers Forecasts Uranium Shortfall in Three Years. Bill Powers focuses on investment opportunities in the Canadian energy sector, mainly independent oil & gas companies and now uranium companies. We talked with him and he thinks uranium could reach $100/pound this decade.

Interviewer: A lot of newsletters cover oil and gas, but you picked uranium, which hardly anyone was covering until recently?

Bill Powers: I feel the uranium market right now is the world most unbalanced commodity market. In a sense, the world, through the nuclear power industry, consumes approximately 172 million pounds of uranium per year, and the world only produces about 92 million pounds of uranium per year. The supply deficit is made up through above-ground inventories, which are being worked down pretty quickly. Those numbers were supplied by Uranium Information Center. A lot of my information comes from the U.S. Department of Energy (DOE) or the Nuclear Regulatory Commission. For example, I discovered from them that the U.S. produced, through the 1980s, about 43.7 million pounds of uranium. And by 2002, the U.S. only produced about 2.34 million pounds of uranium.

Interviewer: Where is uranium being produced in the United States?

Bill Powers: Wyoming. There is also a uranium facility in Nebraska. I think there are two in-situ leach plants in Wyoming and another one in Nebraska. There are a couple of phosphate farmers in Florida who produce uranium. I believe there is a facility in Texas that also produces uranium. For the most part, the uranium industry in New Mexico has just about been wiped out. The very low prices that we’ve seen, for about twenty years, have pretty much wiped out the entire U.S. uranium industry. To go from over 43 million pounds to less than 2.5 million pounds, it has really only allowed the most productive, highest margin and most efficient mines in the country to continue operating in that environment.

Interviewer: So that makes the U.S. a net importer of uranium?

Bill Powers: Absolutely. According to the DOE, US imports have gone from 3.6 million pounds per year in 1980 to 52.7 million pounds per year in 2002. A lot of it comes from Canada, but a significant amount is coming from the Russians, through a program called HEU (highly enriched uranium): the megatons to megawatts program. It where the United States Enrichment Corporation, as well as its partner in Russia, took highly enriched uranium and broke it down into lower grade uranium that could be marketed to nuclear power companies throughout North America and around the world. This has been one of the reasons we’ve had lower prices. All of this uranium has cluttered the market the past few years. And the US Enrichment Corporation has a lot to do with why we’ve seen low uranium prices here in the States. I had a conversation with them about the fact that since 1998, when they became a public company (after being a company that was owned by the U.S. government), their long-term inventories of uranium had declined. When they became a private corporation, the U.S. government gave them 7,000 tons of enriched uranium and 50 tons of highly enriched uranium. They have been selling about 6 million pounds of uranium into the marketplace every year since 1998. According to my conversation with them, they have about three to four more years of selling. It because the US Enrichment Corporation wants to get out of the uranium storage business, and they want to be in the processing business.

Interviewer: How long will it be, do you think, before USEC is going to stop being a factor on the selling price pressure of uranium?

Bill Powers: I would probably say in about three years. For the uranium they are now selling, the cost of the uranium to them was zero. This has really made that company look very profitable. They are selling about $100 million worth of uranium every year, and they intend to do this at no matter what price. This is an extremely bullish scenario right now because uranium prices have touched twenty-year highs, despite the fact that USEC is dumping more than three percent of the world uranium consumption onto the market place. When this dries up, we should see markedly higher uranium prices.

Interviewer: How high is high when you say that?

Bill Powers: I would say up to $100 per pound. Before the end of this decade, uranium will probably be $100/pound. The Russians are going to be holding back some of their output from the megatons to megawatts project. Their (the Russian) uranium is going to be needed for internal consumption. Russia has a growing nuclear power industry. They need to have uranium supplies available. Theye not going to be selling as much as they had in previous years. It appears it is going to be very important to factor in reduced Russian supplies as well as when USEC gets out of the business.

Interviewer: How can a sophisticated investor benefit from uranium rising price?

Bill Powers: The most leveraged investments are the Canadian juniors. I believe Cameco (NYSE: CCJ) has other businesses out of uranium exploration and production, and it is a very safe way to play uranium. But I think there are far better opportunities out there. One of my favorite companies is Strathmore Minerals (TSX-V: STM). I really like their business model of acquiring a great deal of very prospective uranium properties at bargain basement prices. Theye able to do this because, right now, uranium has gone through a twenty-year depression. The prices for some of these pretty far advanced projects are very cheap. I think they are well leveraged for that. Another safe way to play uranium is Denison Mines (TSX: DEN). They produce about 1.3 million pounds per year. They have properties are in McLean Lake, Saskatchewan, which is part of the Athabasca Basin. What I like about them is they are able to use their cash flow from their existing production to further expand some of their properties. With UEX Corporation (TSX: UEX), Cameco was the shareholder. UEX was founded several years ago with Pioneer Minerals. Both of the companies put in properties. It look like they are rapidly advancing some of their properties in Athabasca. I believe they have about eleven properties they have an interest in.

Interviewer: What about other energy factors, such as crude oil, and what do you see happening there?

Bill Powers: I would say crude oil is heading much higher. We have reached the worldwide production peak of crude oil, or we are very close to it. This is not very well recognized. As demand continues to rise, and world production starts a downward slope, wee heading for much higher crude oil prices. I see much higher prices later this decade, if nothing goes wrong. What I mean by that is the natural market equilibrium price of crude oil should be $50 within the next eighteen months. And probably over $100 by the end of this decade if nothing goes dramatically wrong. That would come from the natural decline of existing reservoirs, limited new discoveries, and increasing demand. However, if a country, such as Saudi Arabia, were to have a regime change?

Interviewer: Are you looking for a regime change in Saudi Arabia?

Bill Powers: Yes, there is a body of evidence that supports this. Terrorist incidents are becoming more violent and closer together in Saudi Arabia. Right now, wee seeing those attacks targeted to the oil workers. I believe it will not be too long before those attacks are focused more on the royal family. I believe that will be the next stage in Saudi Arabia. There a very good chance, which history supports, is when there are sudden regime changes in oil-exporting countries, oil exports from those countries drop significantly. Regardless of what were to happen, as far as the political situation, a lot of their fields, especially Ghawar, which is the biggest oilfield in the world ?it produces between 4 and 4.5 million barrels per day ?there is evidence that this field could decline relatively soon. Saudi-Aramco has been injecting substantial amounts of water into injection wells to push the keep production flat What this has done is it keeps production flat, but it sort of an illusionary fountain of youth. If you keep injecting water, the amount of water you produce, along with the oil, continues to rise. As the water cut continues to increase, the amount of oil produced can fall dramatically. If that were to happen, if Ghawar were to go into a permanent and irreversible decline ?well, it could happen relatively quickly. There are other fields in the Middle East, such as Yibal in Oman, where they had a lot of water flooding and horizontal well drilling. Yibal has gone from 250,000 barrels per day in the late 1990s to about 80,000 barrels per day now. If we were to get that type of decline in Ghawar, the world is going to be seeing higher prices just on that. Right now, there is not any excess oil production supply anywhere in the world. A relatively small reduction in availability of supply will lead to an exponentially higher oil price.

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New Mexico Joins the Nuclear Renaissance

The Urenco enrichment facility could spark another New Mexico uranium boom. Another uranium boom may now be in progress. How is that possible?
New Mexico, Uranium, Mining, Uranium enrichment, nuclear power, energy
New Mexico hasn’t had a uranium boom since 1950. After Navajo shepherd Paddy Martinez woke up from his nap, beneath a limestone ledge with a handful of funny looking yellow rocks, only to be later told he had discovered New Mexico first uranium, the state was swarmed with thousands of prospectors hoping to cash in on the nuclear metal.

Another uranium boom may now be in progress. This time, the charge is led by the European consortium Urenco Ltd, general partner of Louisiana Energy Services (LES), which was issued a draft license, this past Friday, by the U.S. Nuclear Regulatory Commission to build and operate a $1.5 billion uranium enrichment plant in Lea County, New Mexico. Louisiana Energy Services is a Urenco-managed partnership, whose members include Exelon Corp, Entergy Corp and Duke Energy Corp. This is the first permit issued for a uranium enrichment facility in thirty years; the first ever to a private company.

Announcement of the uranium enrichment facility came nine days after International Uranium Corporation (IUC) announced it was reopening its uranium mines in the Four Corners region of the western United States. In a company news release, Ron Hochstein, president of IUC, announced, “We intend on utilizing our large capacity mill to its full advantage through toll milling contracts with other future miners in the area? The company White Mesa Mill, only one of two operational uranium mills in the United States, is across from the New Mexico border.

Uranium development companies have acquired uranium properties, abandoned by major oil companies during the uranium drought of the 1980s and 1990s, and could be well positioned to advance those properties through the permitting process. Over the past year, newer uranium companies have entered the state, optimistic the record-high spot uranium price may help finance their exploration and development costs in New Mexico.

With a uranium mill, just past the western border of New Mexico in neighboring Utah, and the soon-to-be-built uranium enrichment facility in southeastern New Mexico, when might the state again become a world-class production center? Only over the past few years has Canada Athabasca Basin, with its ultra-high grades of uranium ore, surpassed the cumulative production of New Mexico. The Grants Mineral Belt in northern New Mexico produced more than 340 million pounds of uranium oxide (U3O8, yellowcake) before the uranium depression of the 1980s and 1990s brought New Mexico mining to a standstill. The Grants Mineral Belt produced about 40 percent of all the mined uranium in the United States.

Who is Urenco?

Urenco is short for Uranium Enrichment Company. Three countries ?Germany, the Netherlands and the United Kingdom ?signed the Treaty of Alemlo (Netherlands) on March 4, 1970 as a way to collaborate in developing centrifuge technology for uranium enrichment. In 1971, three industrial partners ?British Nuclear Fuels plc (BNFL), Ultra-Centrifuge Nederland N.V. (UCN) and Uranit GmbH ?founded Urenco Ltd. The company has since spun off its Enrichment Technology Company. There are now three wholly owned subsidiaries, based in each of the respective countries.

The Louisiana Energy Services partnership plans on building the National Enrichment Facility (NEF) about five miles east of Eunice, New Mexico. The NEF plans on providing a sustainable domestic supply of slightly enriched uranium, also called ‘low enriched uranium?or LEU, using Urenco gas centrifuge technology. Currently, USEC is the other uranium enrichment facility, using the more expensive gaseous diffusion technology. USEC is a publicly traded company, created under the Clinton-Gore Administration for the purposes of the Russia-US ‘swords for plowshares?HEU deal. Under the HEU agreement, Russia counterpart supplied USEC with uranium from decommissioned Russian nuclear weapons. This uranium now supplies U.S. utilities with about 50 percent of the uranium used to power domestic nuclear power plants.

In 2001, the domestic uranium industry only produced 12 percent of its required supply of enriched uranium, while Russia exported 55 percent to the United States. Urenco supplied 16 percent of the U.S. demand. Urenco plans to increase its percentage of enriched uranium to about one-quarter of U.S. enrichment demand, once the plant is running at full capacity. This amounts to annual production of 3 million Separative Work Units (SWUs). A Separative Work Unit is the unit used to express the effort necessary to separate U-235 and U-238. The capacity of enrichment plants is measured in tons SW per year. For example, a large nuclear power station with a net electrical capacity of 1300 MW requires an annual amount of 25 tons SW (enriched uranium) to operate (with a concentration of 3.5 percent U-235).

The National Enrichment Facility will become Urenco North American debut of the company gas centrifuge technology, which the company boasts is the ‘world most advanced, energy-efficient and cost-effective uranium enrichment technology.?It has reportedly been used for more than thirty years.

What is Gas Centrifuge Technology?

Only 0.7 percent of the weight of natural uranium, the U-235 isotope found in nature uranium, is the isotope needed to power a nuclear reactor. The U-235 isotope is the one that splits inside the core. It is this isotope which releases energy in the fission process. Because natural uranium can not power a nuclear reactor, the concentration of U-235 must be slightly increased, also known as ‘low enrichment,?from 0.7 percent to between 3 and 5 percent. The enrichment occurs during the centrifuge process.

It is called the ‘gas centrifuge process?because gaseous uranium hexafluoride (UF6) is fed into a cylindrical, high-speed rotor. The gas is whirled around inside thousands of centrifuges in a nearly friction-free environment, separating the fissionable U-235 isotope from the heavier U-238 isotope. The centrifugal motion pushes the heavier U-238 gas away from the useful U-235 gas, which remains closer to the rotor axis. The process is repeated until the desired enrichment percentage is achieved.

Let back up the process a few steps. First, the uranium is mined and milled. The finished product, which is shipped off to the conversion facility, is called yellowcake.

The next step in creating nuclear fuel for a reactor is the conversion process. The yellowcake, or U3O8, is converted into uranium hexafluoride, or UF6. Yellowcake is dissolved in nitric acid to create a new solution, uranyl nitrate. Hydrogen is then used to reduce this to UO2. This is then converted to UF4 with hydrofluoric acid. The UF6 is obtained with the uranium is oxidized with fluorine. At ambient temperatures, UF6 forms solid grey crystals. Depending upon its temperature, uranium hexafluoride can be a solid, liquid or gas.

After the U3O8 has been converted to UF6, it is transported to the enrichment site in an internationally standard transport container. The solid UF6 is heated up in an air-tight pressure vessel until it returns to its gaseous state. It is then fed into the centrifuge. The Urenco ‘gas centrifuge?has two pipes, one which removes the enriched uranium and another which removes the heavier uranium, depleted of U-235.

Because a single centrifuge won’t enrich the uranium to the desired level, a number of centrifuges are connected together. The connected, parallel centrifuges are called a cascade. By passing through each of the centrifuges in the cascade, the U-235 is gradually enriched to the level required by the customer, a nuclear power plant.

After the desired enrichment level is achieved, the enriched UF6 gas is passed through a series of compressors and packaged into product containers. The UF6 gas is cooled until the vapors solidify onto the walls of the container. The finished product is shipped to the fuel fabrication plant where the solid, enriched uranium is manufactured into fuel pellets.

Uranium Enrichment Means Big Money

The key to expansion, after sufficient U3O8 has been mined, is ensuring the uranium is converted and enriched so that it can fuel nuclear power plants. Until now, U.S. utilities have relied upon Russian HEU to LEU supplies to fuel their nuclear reactors. Urenco NEF in New Mexico gives a boost to the nuclear energy sector, and provides U.S. utilities with an alternative to having uranium enriched at USEC Kentucky plant, or worse yet, shipping domestically produced uranium overseas for enrichment. For instance, Brazil was forced to have its uranium enriched in Europe, until recently.

Value-adding to the fuel supplying reactors can mean big money for LES, and especially for Urenco Ltd. But, the investment of $1.5 billion will also produce hundreds of new jobs for the border towns of both New Mexico and Texas. Estimates show about 800 construction jobs will be created as the facility is being built, and as many as 1200 during the peak of the construction. About 300 employees will be required to operate the facility. Nearby Andrews, Texas has been celebrating the National Enrichment Facility. The city manager expects the number of new homes under construction to jump by 10-fold this year. School enrollment has grown over the past year while newcomers have moved into the area, hoping for construction jobs.

Urenco National Enrichment Facility should begin construction later this summer, probably in August. Louisiana Energy Services (LES) hopes to start selling enriched uranium in 2009, probably to its U.S. utility partners, who hope to build new reactors. A statement issued by the Nuclear Energy Institute (NEI) on Friday, congratulating LES for the approval of its NRC license pointed ahead to the U.S. expansion of the nuclear energy sector. The NEI chief nuclear officer, Marvin Fertel, said, “This experience bodes well for the construction and operating license applications for new nuclear power plants that are expected to be submitted to the agency beginning in 2007.?

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