Sprott Asset Management uranium expert Kevin Bambrough talked with us about the “second leg” of the current uranium bull market. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.” He said many price projections may be inaccurate because “people are underestimating future demand.”
StockInterview: Looking ahead, do you think we’ll see more deals between a small uranium producer, such as Uranium Resources (OTC BB: URRE) and the Japanese multi-national conglomerate, Itochu Corporation?
I have no doubt that it’s going to continue to happen. More importantly, I’ve heard that some of the major builders of nuclear facilities around the world, companies such as Areva are quite concerned about the availability of supply going forward. When these companies are talking to countries and utilities that potentially could contract to build nuclear facilities, they’re basically being told that buyers want uranium supply assurances, or they aren’t going to give an order to buy a nuclear facility. I’ve heard they are looking to do joint ventures or at least contract with emerging producers to try to get future supply. Then, they will be able sell their nuclear technology to countries and ensure supply.
StockInterview: Will the Chinese be satisfied with the uranium they plan to buy from Australia, or will they have to tap into uranium production from another or other countries?
I think that the Chinese will probably look elsewhere as well. Countries have strategic oil reserves. Why shouldn’t they have strategic uranium reserves to supply their nuclear reactors? It makes sense to have a good stockpile of uranium considering the relative cost of nuclear power versus anything else. I don’t think that the nuclear power industry should operate on a just in time basis, considering the costs and the risks of making sure you can secure supply. Don’t get me wrong. There is plenty of uranium in the world, but we’re just going to have to pay up for it. I believe we’re going to consume lot more than what we’re consuming nowadays – a decade or two out. The world is waking up to the reality of peak oil production, and how it is going to affect all aspects of energy production.
StockInterview: How much of a factor will Russia play in the nuclear build up?
Looking at some of the recent statements made by Russian officials, it’s completely clear to me that we’ve been correct in what we’ve been thinking for a long time: the HEU agreement (to deliver highly enriched uranium and have it blended down) is probably not going to be renewed. The Russians are planning to make nuclear technology a key export for them, really as a value added product to go with uranium production. They desire to be able to offer a complete solution, not just uranium, but the actual building and technology around the nuclear facilities themselves. They will also have growing uranium demands domestically and have voiced concern about being able to meet their own needs beyond 2015.
StockInterview: But nuclear energy critics claim all of these power plants won’t secure financing and most plans are just pipe dreams never to be built.
Two years ago, the critics said there would never be any more nuclear plants built in the U.S. People used to say nuclear was over for Germany, and that many countries would exit nuclear power. Now we’re seeing the exact opposite. We’re seeing proposals being done, incentives put in place, and a multitude of projects moving ahead. If what the leading scientists from NASA, the NOAA and from many organizations around the world are saying about global warming, and the acceleration we’ve recently seen continues, people are going to be begging to have more nuclear facilities and cut CO2 emissions. The environmentalists will be leading the charge.
StockInterview: How long will it take before the proposed nuclear build up impacts the uranium mining companies?
The actual build of all this takes time. I think the increase in the positive perception, of the nuclear industry is going to continue to accelerate. All demand for uranium can come from just the planning stage for nuclear power plants, as companies look forward and try to contract future supply. Ultimately, that’s what will keep driving the uranium price higher.
StockInterview: How seriously is the nuclear industry taking the global build up?
I think the industry is starting to take it very seriously. That’s why the uranium price keeps pushing higher. People are going around trying to contract for uranium, and they are finding it more difficult. People are also starting to realize that as you have problems, such as the McArthur River flooding, which got the uranium bull market jump started, and now a problem at Cigar Lake, you really should have a good build up of inventory in order to protect yourself in this environment. Especially when the relative cost of having to switch off a nuclear facility to go to something else in a pinch is multiples higher.