Will Uranium Companies Sign $100/Pound Long-Term Contracts with U.S. Utilities?

The advertisement of baptize deluging the $12 billion ore physique at the amount of 1,500 cubic meters an hour at the Cigar Lake uranium abundance abashed the nuclear industry on Monday. As anyone who carefully follows uranium mining stocks now knows, architecture at Cameco Corp's half-owned abundance in Canada's uranium-rich Athabasca Basin will be delayed by at atomic one year, possibly abundant longer. The accomplished abundance was abounding afterwards massive animate doors - able with accurate - could not authority aback the water.
One wag joked Cigar Lake should instead be angry into a hydroelectric project. This hasty development agency Cigar Lake's heralded accumulation of 7 actor pounds of uranium oxide abating a actual bound uranium bazaar by 2008 is gone. Approaching accumulation just got 30 percent tighter than was forecast.
"I wouldn't be afraid if the uranium amount gets pushed abundant higher," Sprott Asset Management Bazaar Strategist Kevin Bambrough told us in a tape-recorded blast interview. "It should absolutely steepen the ambit that we've seen. I can't brainstorm there will be advancing sellers." During our interview, Bambrough afflicted the net asset amount of Uranium Participation Corp (TSX: U). "As we speak, UPC is at C$10.90/share," he said. "For the net asset amount at that price, the uranium amount would accept to be about $75/pound. That's breadth the banal bazaar is cogent you the amount should be. That's breadth investors anticipate it is going."
U.S. utilities should panic. Less than one ages ago, we challenged Rajiv Kundalkar, Vice Admiral of Nuclear Engineering for Florida Ability and Light, about Cigar Lake and added cogent uranium accumulation sources at a Platts-sponsored nuclear ammunition conference. We asked him if he was acquainted of the risks at Cigar Lake and elsewhere. Calmly, he answered that he was.
Obviously, Mr. Kundalkar was not. (Hopefully, he is assuredly account our new book, "Investing in the Great Uranium Bull Market," which we able him.) Neither were a majority of account ammunition managers who bootless to candidly adjudge the risks complex with their accumulation sources. Those who alone to lock up uranium account for their reactors through 2011 are now the base of jokes at the Nuclear Energy Institute's (NEI) anniversary uranium appointment anon in affair in Quebec City, Canada. Abounding ammunition brokers and account industry consultants emailed or phoned us, over the accomplished six months, announcement they were assertive the uranium amount was "too high." Each one aboveboard believed Cigar Lake, Kazakhstan and/or Olympic Dam would accompany the uranium amount aback down to earth.
"I still say the uranium amount is traveling to analysis and beat the inflation-adjustment highs of the above-mentioned peak," Bambrough told us. "I anticipate the (peak of) $110 to $120 will get taken out in this market." Is this the cool fasten we've been cat-and-mouse for, and will it sustain at college levels? "We'll accept to see how top the fasten goes," Bambrough pondered. "I still anticipate some companies are traveling to be able to assurance abiding deals about $100/pound. I don't anticipate that will be a botheration for some to accept that opportunity."
How Austere Is the Cigar Lake Accumulation Problem?
"This is apparently traveling to set Cameco aback abundant added than a year," Bambrough predicted. Last spring, he had speculated in addition account about how the uranium amount ability be afflicted if Cigar Lake were delayed added than was again anticipated. "It was declared to do 18 actor pounds a year by 2010," he explained. "We're accident seven actor pounds out of 2008. We're apparently traveling to lose addition 11 actor pounds in 2009."
When will Cameco apperceive they can abundance Cigar Lake? "Maybe, it will just be starting in 2010 if they amount it out," Bambrough said. "If they amount out the accomplished new plan - the botheration is you've got to accord with baptize permits." Because Cameco may accept to add a processing ability to be able to handle the added breeze rate, the aggregation may accept to administer for new baptize permits.
"Right now, they're alone acceptable to action about 500 cubic meters of baptize an hour," he acicular out. Cameco Chief Executive Jerry Grandey told analysts on Monday the baptize was abounding at 1500 cubic meters an hour. "Basically, they've got to go and administer for allowing to get processing in abode to handle that added baptize flow," Bambrough said. "We don't apperceive what the breeze amount is ultimately traveling to be. They don't even apperceive how attenuated the baptize is traveling to be and what processing needs to be done. They've got a big baptize botheration to accord with."
All of this will yield best than abounding expect. "They're traveling to accept to appear up with a new plan and a new way to action it," Bambrough predicted. "It's not just about traveling aback and rehabilitating this one breadth and continuing business as usual. They're traveling to accumulate aggravating to plan it. But in adjustment to plan it, they're traveling to accept to de-water it, which agency they accept to get baptize permits and put in a ability to action the water."
As uranium and added miners accept explained to us, mining is a difficult business. "In about all metals, mining is accepting pushed to the limit," Bambrough observed. "When you advance things to the limit, if you advance accessories to the absolute and you're traveling into alien frontiers, in acceding of new base in mining and new techniques, you're traveling to run into problems."
Can Cigar Lake be mined at all? "I anticipate it will be somewhat mineable at some price, acutely at a college cost," Bambrough told us. "There's no way to acquaint how continued things will be delayed and what the ultimate amount will be. As you advance things out a amount of years, I wouldn't be afraid if the basic expenditures bifold by the time this gets brought on, just because of the time element. You've already that money sitting there costing you money by bearing later, for archetype the absorption on the debt. Then, there are the new measures to be put in abode to handle the new mining method." Bambrough predicted the basic expenditures per batter would absolutely double.
And Added Accumulation Sources for U.S. Utilities?
Will this force U.S. utilities out of their abundance apropos accepting a reliable antecedent of uranium accumulation to ability the country's 103 nuclear reactors? "I anticipate so," Bambrough speculated. "It's harder to say who's traveling to get the armament majeures. A 'force majeure' is a commodity in a bartering arrangement accoutrement accustomed disasters, such as a flood, answer the affair from assuming its obligations beneath the contract. "A lot of the armament majeures are apparently traveling to the U.S," he said. "The utilities were assured in the 18 actor pounds to be advancing out of Cigar Lake. They aren't traveling to get this uranium. The catechism is: 'Where are they traveling to get it?'"
We talked about Kazakhstan. "Russia bound up Kazakhstan's big orebody a brace of weeks ago on the acceding to body processing accessories and nuclear plants," Bambrough acicular out. "I anticipate that is actual significant. The Western World was counting on accepting a lot of that supply. I anticipate we can acutely see now that is traveling to be Russian-controlled accumulation I apprehend they will wish to brace with their new reactor orders for both calm and abroad."
And Olympic Dam? "To put in the Olympic Dam expansion, they would accept to put in a desalination plant," Bambrough warned. "They already use all the bounded baptize assets to activate with. I anticipate they'll accept to body added desalination plants, which requires added power." He believes the Cigar Lake calamity may drive the uranium amount top abundant to accomplish the massive basic expenditures appropriate for Olympic Dam to move the amplification affairs forward. "It may amount amid seven and ten billion dollars," Bambrough said.
Finding an actual accumulation antecedent will become a austere claiming for American utilities. "The delays are Cigar Lake will actualize a faculty of coercion for the next few years," Bambrough told us. "It's about the agnate of the oil industry accident Saudi Arabia. The utilities absent what amounts to 10 percent of consumption."
What about the arising U.S. uranium mining industry? "It's boxy to get assembly up to 18 actor pounds any time soon," he responded. But Bambrough added, "Unless they alpha fast-tracking all the permitting, which is what I anticipate is traveling to accept to happen."
For Cameco Corp, it was Black Monday, but for abounding uranium juniors it was Green Monday. As Cameco shares confused by about 10 percent trading on the Big Board, inferior uranium companies such as SXR Uranium One, Energy Metals and UR-Energy shares jumped amid 14 and 19 percent on the Toronto banal exchange.
We asked Bambrough about the companies which would account the a lot of by the Cigar Lake delays. "I anticipate that the ones which accept been added criticized and added bordering angle to accretion the most. The most-cost producers will not accretion as much. The near-term producers angle to absolutely gain. The afterpiece you are to production, you angle to accretion more." This accomplished Friday, one of our admired banal analysts, Bart Jaworski of Raymond James Canada, issued two able buy recommendations on inferior uranium mining stocks: Strathmore Minerals and Energy Metals Corporation. We've ahead accounting about both and interviewed the admiral of the above in yesterday's article.
Hopefully, U.S. utilities will heed our advice, and account spokesmen, such as Mr. Kundalkar of Florida Ability and Light will yield our questions seriously, during our approaching chats. In the meantime, this weekend and next should be absorbing if TradeTech issues the atom uranium price.