Threat To America; Opportunity For Canada
The phony threat of a U.S. default has been 'averted', but America is inching closer to a very real and serious energy threat. Since the Fukushima disaster, nuclear power has been a hot button topic. After the incident, sentiment toward nuclear power turned negative, with many knee-jerk reactions by some anxious governments. In turn, this absolutely crushed the price of uranium. However, now that the dust has settled, the reality that the world needs nuclear power more than ever, as it provides a clean and stable base load power source, is once again setting in.
Uranium currently trades for roughly US$35.00 a pound. In short, that price is uneconomic for many uranium mines in the Western World, excluding one particular high-grade region in Canada which is home to the largest uranium mine on the planet. To put that price into context, in 2007 uranium traded for as high as $135 per pound. Ironically, the fundamentals behind uranium are stronger today than they were in 2007, yet current prices would have to increase more than 300% to match 2007 levels.
Uranium Mines are Rare
Uranium mines are not common. They are not as common as copper mines, silver mines, or even gold mines. They are quite rare. Only a handful of significant uranium mines have been brought into production in the last decade, and yet, here we stand. The price of uranium is depressed. However, demand for the commodity is increasing by the year.
Last year, world uranium consumption was approximately 165 million pounds. There was only 152 million pounds of fresh uranium production, leaving a difference of 13 million pounds. With over 60 nuclear reactors under construction globally, there will be an estimated 521 operating reactors in 2022, up from roughly 440 today. Thus, demand for uranium is going nowhere but up.
The World Nuclear Association (WNA) reported last month that China currently has 17 reactors in operation, with 30 under construction, and more to soon start construction. In respect to China's anticipated nuclear power growth, the WNA reported:
"Additional reactors are planned, including some of the world's most advanced, to give a four-fold increase in nuclear capacity to at least 58 GWe by 2020, then possibly200 GWe by 2030, and 400 GWe by2050."
Total electricity generated from the 102 nuclear power plants in the USA stood at roughly 100 GWe in 2012. India has 7 reactors under construction right now, with 20 already in operation. Compared to China that number appears small, but it will dramatically increase demand for uranium within the country. Even Saudi Arabia, the oil-rich behemoth, is building 16 nuclear reactors at the moment. One has to ask, why?
History tells us that, when a massive global shift occurs, in order to favor a particular energy source, as we are seeing with uranium right now, prices skyrocket. It would not be surprising if, by this time next year, uranium prices were 50% to 75% higher than where they sit today. It would be surprising if, over the next decade, uranium prices did not continually climb.
Why such a prediction?
There is more to the uranium story. Are you familiar with the joint venture between the United States and Russia, known as the 'Megatons to Megawatts Program ? Not too many people are, but its implications on the energy market, more specifically the nuclear energy market, are huge.
For the last 20 years, this program has balanced out the lopsided uranium supply and demand imbalance in America, thus keeping uranium prices somewhat in check over that time period. The United States only produces roughly 9% of the uranium it consumes annually. Currently, over 50% of the uranium used to fuel its reactors comes from Russia. The rest of its uranium imports come from Australia and, most importantly, Canada (more on this shortly).
The Megatons to Megawatts Program with the Russians has provided the necessary 'filler' uranium to keep up with America's world-leading consumption. However, that is all coming to an end in November, as the program will expire, and no longer exist.
To explain exactly what this program is, let us go straight to the source, the United States Enrichment Corporation (USEC).
The USEC stated, on June 24th 2013, in an article titled Megatons to Megawatts Program 95 Percent Complete that:
"USEC is scheduled to take delivery of the final material for the program in November 2013 when the equivalent of20,000 nuclear warheads will have been downblended into commercial reactor fuel. To date, the low enriched uranium created by the downblending could generate electricity that would meet the demand for a city the size of Boston for approximately 730 years. In past years, up to 10 percent of the electricity generated in the United States came from nuclear power plants using this fuel."
The Megatons to Megawatts Program was signed by President Bill Clinton and Boris Yeltsin, as a way to move on from the Cold War-era, and put to good use some of the nuclear weapons created by Russia during the arms race. Instead of letting these WMDs sit around in Russia, Yeltsin agreed to downblend the uranium within these weapons to help power U.S. nuclear reactors, as nearly 20% of all electricity in America comes from nuclear power. This was an extremely valuable deal for America as the country's electricity supply is so dependent upon uranium imports.
Ironically, every tenth lightbulb in the USA is energized by uranium that was once aimed at the country during the Cold War in the form of a nuclear warhead.
JP Morgan analysts are predicting a price of $90 per pound of uranium by 2016... roughly a 150% increase from today's price.
While the Megatons to Megawatts Program was a great deal for the USA, it was viewed by the citizens of Russia as terrible, and displayed weakness from its leadership (Yeltsin). Now, 20 years after the agreement was signed, the program is coming to an end in November, and Russia has no intention of renewing it. And why would they? Once again, they have the USA stuck between a rock and a hard place, and their leader, Mr. Putin, is a masterful manipulator who likes to use the country's energy supplies as a way of holding other nations at ransom.
Just look at how brazen Putin has been toward the USA in recent months. He provided safe haven for the most wanted man in America, Edward Snowden. Furthermore, Putin checkmated Obama into taking a more submissive role in Syria through Russia's influence in the United Nations. He wrote an Op-Ed in the New York Times criticizing America's image of itself and denouncing 'American Exceptionalism'. Now, Putin has another card to play, and most certainly will with uranium, a commodity the USA so desperately needs.
It is our belief that Putin's bravado of late stems from him knowing that the Megaton to Megawatt Program is almost finished, potentially leaving America in a position of weakness.
For 20 years, America has relied on its Megaton to Megawatt Program with the Russians to feed its massive uranium appetite. By the end of next month, the deal will become history. Considering that 20% of America's electricity comes from uranium, this is worrisome for the White House, but has Pinnacle Digest, and many others, turning bullish on the commodity.
"There are no guarantees. But at a time when many investments-induding most stocks and bonds-are flying high and are correspondingly expensive, uranium offers a rare exception. It is an inexpensive asset and the odds are in the investor's favor."
- The Wall Street Journal
Canada to the Rescue
There is no doubt that America will be looking to its cousin up north, Canada, the world's second largest uranium producer, and home to the prolific Athabasca Basin, to help fill the coming energy void.
This is the region where we believe well-positioned and advanced junior uranium companies have an opportunity to capitalize in the coming years.
Canada is a world uranium power. Its recognition for such a title comes from having the world's leading source of high-grade uranium in the prolific Athabasca Basin, located in Northern Saskatchewan and Alberta.
While the Athabasca Basin is already world-renowned, it is likely to become the most important uranium district on the globe, given its close proximity to the United States, and the fact that the largest mine within the region is economic, even at today's depressed uranium price.
Within the Athabasca Basin, some of the grades that have turned up are ten to twenty times higher than anywhere else in the world. Because of this, the basin is home to the largest uranium mine on the planet. It has been reported that 30% of the world's supply of uranium comes from this one basin.
The McArthur River mine, owned by Cameco and Areva, located within the Athabasca Basin, is the world's largest high-grade uranium mine. This one mine, operated by Cameco, is responsible for 80% of Canada's annual uranium output.
"Ore grades within the deposit are 100 times the world average, which means the operation can produce more than 18 million pounds of uranium each year by mining only 150 to 200 tonnes of ore per day" states Cameco.
Within the Athabasca Basin, the 'who's who' of the uranium industry have invested billions of dollars. Rio Tinto, Areva, Denison Mines and, of course, Cameco, one of the world's largest uranium producers, and most active player in the Athabasca Basin, are all there.
In 2011, uranium explorer Hathor Exploration was bought out by Rio Tinto in a deal worth approximately C$578 million. The explorer was the target of both Cameco and Rio Tinto, who took part in a bidding war for its Athabasca Basin 'Roughrider' Uranium Deposit.
The infrastructure within the Athabasca Basin is fantastic, with roads, power, political support and, most importantly, there are mills operating in the basin. Separately, each mill can cost anywhere from $200 to $500 million to build, a daunting sum for any junior miner and its financiers.
Without this infrastructure in place, thanks in large part to companies like Cameco and Areva, as well as the government, Pinnacle Digest would not have spent the last month researching explorers within the basin in order to determine our next Featured Company.
After taking several meetings since early September, regarding the opportunities within the Athabasca Basin, we have selected a Featured Company.
Within days we will be initiating coverage on our new Featured Uranium Company. Our report will arrive in your inbox upon its completion this week. So, stay tuned.
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