Uranium as an alternative investment
The science, rocket or otherwise, behind the price of uranium.
In recent years, the price of uranium has flown higher than that of gold, silver, platinum or palladium. From 2001 to 2006, the uranium price rose by approximately 700%.
It looks like the upside may have a lot further to go. Global demand for uranium is 160 million pounds per year, but only 90-100 million pounds is produced from mining production. The shortfall is being made up by drawing from stockpiles that had built up from the over-production during the 1970s and from decommissioned nukes from the former Soviet Union.
ôFor 20 years, mine supply has accounted for 60% of what is needed to supply reactors,ö says Dr Tim Sugden, managing director at Nova Energy Limited at the gold and precious metals investment world conference in Hong Kong. Nova owns a major uranium deposit in Australia that it hopes to start mining in the near future. ôAfter 2013, Russia has said it will stop supplying enriched uranium to the West. There will be a supply squeeze.ö
From a geological perspective, uranium is by no means a scarce metal. However, a major challenge faced by uranium mining companies is the speed at which new projects can be approved, developed and brought into production.
The uranium story is driven by the search for clean energy sources. Even environmentalists have arrived at the view that the small risk of nuclear meltdowns is far lower than the damage caused by carbon emissions from coal-fired power stations. The 600 coal-fired power stations in the USA produce 10% of global carbon dioxide emissions. Yet there are 103 nuclear reactors producing 20% of the countryÆs electricity needs.
China now has nine nuclear reactors and plans to build 40 reactors by 2020. ôTo fuel the 168 new reactors planned for 2020 requires twice the level of uranium than is currently produced,ö says NovaÆs Sugden. ôHigher prices will encourage new exploration and development.ö There are uncertainties over the expansion at the major uranium mine Olympic Dam and delays at Cigar Lake. Australia, which has the worldÆs biggest reserves of uranium, still has curbs over new mines, though that policy may be reversed in 2007. The other major source, Kazakhstan, still faces the question mark of political risk.
Strathmore Minerals owns several uranium prospects in New Mexico and Canada. Its Church Rock plot has the feature of being very low cost by virtue of the fact that the uranium can be extracted by in-situ leaching. That uranium does not need to be dug out and milled, which would add significantly to costs. Via this method, bicarbonate of soda is pumped down into the rock. It is pumped out at the other end of the ore-body, and that solution contains uranium. It is dried and the resultant yellow-cake is put in barrels and sent for enrichment. That then is the extent of the minerÆs role. They play the upstream part, but receive leverage to the higher commodity price.
One pellet of uranium has the same energy potential of 70 barrels of oil. In a nuclear power station, the reaction from uranium causes enormous heat and the resultant steam from heavy water drives turbines, which creates electricity.
An average nuclear power plant costs about $5 billion to build. A reactorÆs operations are fairly insensitive to uranium prices, as uranium concentrates represent a tiny percentage of total nuclear fuel costs. Therefore, uranium demand is fairly inelastic. A rising uranium price should not curb demand for nuclear-generated electricity.
Beyond the disasters of Three Mile Island and Chernobyl, some people object to uranium mining on security grounds, because the metal is used to make atomic bombs. However, irrespective of how much uranium you have, it is enormously difficult to obtain the reactions that transfer one neutron from the fissionable uranium isotope U235 to the stable isotope U238, in order to create plutonium.
Without going into too much detail (just in case our readership includes terrorists or deranged dictators), in order to make a plutonium bomb, which the military considers to be the optimal atomic weapon, having possession of the 4% enriched uranium used for a nuclear power station still leaves you a very long way from having the 93% enriched criticality to locate the necessary PU 239 plutonium required for weaponÆs grade. The secret formula to get to this level is arcane, and in some ways it is like cooking a soufflT, because if you overdo it, your PU 239 plutonium isotope turns into PU 240, which is useless for military purposes.
Mining uranium and profiting from investing in the metal is therefore not rocket science, unlike making a plutonium bomb and developing the immensely-complicated ballistics technology to make it land in the right place. That is rocket science.
It looks like the upside may have a lot further to go. Global demand for uranium is 160 million pounds per year, but only 90-100 million pounds is produced from mining production. The shortfall is being made up by drawing from stockpiles that had built up from the over-production during the 1970s and from decommissioned nukes from the former Soviet Union.
ôFor 20 years, mine supply has accounted for 60% of what is needed to supply reactors,ö says Dr Tim Sugden, managing director at Nova Energy Limited at the gold and precious metals investment world conference in Hong Kong. Nova owns a major uranium deposit in Australia that it hopes to start mining in the near future. ôAfter 2013, Russia has said it will stop supplying enriched uranium to the West. There will be a supply squeeze.ö
From a geological perspective, uranium is by no means a scarce metal. However, a major challenge faced by uranium mining companies is the speed at which new projects can be approved, developed and brought into production.
The uranium story is driven by the search for clean energy sources. Even environmentalists have arrived at the view that the small risk of nuclear meltdowns is far lower than the damage caused by carbon emissions from coal-fired power stations. The 600 coal-fired power stations in the USA produce 10% of global carbon dioxide emissions. Yet there are 103 nuclear reactors producing 20% of the countryÆs electricity needs.
China now has nine nuclear reactors and plans to build 40 reactors by 2020. ôTo fuel the 168 new reactors planned for 2020 requires twice the level of uranium than is currently produced,ö says NovaÆs Sugden. ôHigher prices will encourage new exploration and development.ö There are uncertainties over the expansion at the major uranium mine Olympic Dam and delays at Cigar Lake. Australia, which has the worldÆs biggest reserves of uranium, still has curbs over new mines, though that policy may be reversed in 2007. The other major source, Kazakhstan, still faces the question mark of political risk.
Strathmore Minerals owns several uranium prospects in New Mexico and Canada. Its Church Rock plot has the feature of being very low cost by virtue of the fact that the uranium can be extracted by in-situ leaching. That uranium does not need to be dug out and milled, which would add significantly to costs. Via this method, bicarbonate of soda is pumped down into the rock. It is pumped out at the other end of the ore-body, and that solution contains uranium. It is dried and the resultant yellow-cake is put in barrels and sent for enrichment. That then is the extent of the minerÆs role. They play the upstream part, but receive leverage to the higher commodity price.
One pellet of uranium has the same energy potential of 70 barrels of oil. In a nuclear power station, the reaction from uranium causes enormous heat and the resultant steam from heavy water drives turbines, which creates electricity.
An average nuclear power plant costs about $5 billion to build. A reactorÆs operations are fairly insensitive to uranium prices, as uranium concentrates represent a tiny percentage of total nuclear fuel costs. Therefore, uranium demand is fairly inelastic. A rising uranium price should not curb demand for nuclear-generated electricity.
Beyond the disasters of Three Mile Island and Chernobyl, some people object to uranium mining on security grounds, because the metal is used to make atomic bombs. However, irrespective of how much uranium you have, it is enormously difficult to obtain the reactions that transfer one neutron from the fissionable uranium isotope U235 to the stable isotope U238, in order to create plutonium.
Without going into too much detail (just in case our readership includes terrorists or deranged dictators), in order to make a plutonium bomb, which the military considers to be the optimal atomic weapon, having possession of the 4% enriched uranium used for a nuclear power station still leaves you a very long way from having the 93% enriched criticality to locate the necessary PU 239 plutonium required for weaponÆs grade. The secret formula to get to this level is arcane, and in some ways it is like cooking a soufflT, because if you overdo it, your PU 239 plutonium isotope turns into PU 240, which is useless for military purposes.
Mining uranium and profiting from investing in the metal is therefore not rocket science, unlike making a plutonium bomb and developing the immensely-complicated ballistics technology to make it land in the right place. That is rocket science.
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