Mining Technology Australia
The Grand Daddy Boom in Uranium
Approaching his 50th year in the uranium business, the quiet but assertive Chairman and Chief Executive of Uranium Resources (OTC BB: URIX). Paul K. Willmott talked to us about the current uranium bull market. Willmott discussed the third uranium bull market he’s experienced with both exuberance and caution. Interviewer: How do you feel about the rising uranium price? And how high do you think it will go? Willmott: Looking at the oft-quoted number of over $100/pound, that number came out of an analysis from a gentleman at MIT (Thomas Neff, MIT Center for International Studies). What he did was use the high point of 1980s with a time-value of money, and came up with $100.
I am not saying that the prices could never get to that level. I’d never say that. There could be a price spike, and there are a lot of things that could or could not happen. The prices will rise to cover projected and estimated costs of production. It will also get to a level that will induce people to invest in companies, or for the company to invest in the business to get a rate of return.
Interviewer: How are the production costs different now as opposed to then? Willmott: If you go back to the 1980s, the majority of the uranium was being mined by underground mining methods. Underground or open pit methods were used here in the United States: most of it in New Mexico, a lot of it in Colorado and Wyoming. The cost of production in those days was somewhat in the mid to high $20’s. When you put a rate of return on it, it got the market price up into the high $30’s. Since then, the major mining in Canada now is not at Elliot Lake or at Bancroft, Ontario, both underground and where it was before. The majority of uranium mining now is being mined in high grade ore bodies in the Athabasca Basin, which back in the 1980s was basically unknown, unexplored or unfound. In the United States, there is virtually little or no underground mining of uranium. It’s all done by low-cost ISL. Same as in Kazakhstan. You still have open pit mining of low-grade ore bodies, but those are very inexpensive to mine as in Africa.
You also have byproduct in Australia. Interviewer: Are you saying uranium prices are determined by production costs, not supply concerns? Willmott: The big point is the major cost of uranium today is significantly less than what it was in the 1980s. If you go back to my basic premise, which is that price rises to cover cost of production, I don’t see that you can make the comparison of taking the high point in the 1980s and transposing it over today on the time-value of money basis, and coming out with something over $100/pound. That’s not to say the market could not get over $50/pound. I think it very well may. I think it will be the spike or an anomaly. And I think it will ultimately fall back as production comes on to the current demand of uranium. Interviewer: What about Asian demand? Willmott: There’s lot of talk about reactors in China, in India, Russia, and elsewhere. Talk of reactors in Europe staying on longer. That could prolong the cycle.
I think that you will find over the next 5-7 years there will be enough uranium discovered, or discovered, put into production, licensed and permitted, to meet our current demand for uranium. That cycle may get prolonged a lot longer as these other (nuclear) plants may or may not come on. Interviewer: Won’t the U. alone put an additional squeeze on the current uranium inventories by building another 10, 15 or 20 reactors? Willmott: No, because if you look at the lead time on the announcement of these plants, the lead time to get these plants on, I think you’re looking at five to ten years at best. The I don’t think it’s going to be as long for the Chinese, because they don’t really have environmental concerns, regulatory concerns or intervener concerns. It certainly would put a crimp on existing and forecasted production. In terms of the long-term needs, they will ultimately be met. The current prices today are impacted by the current needs and some perception about the future. Interviewer: TradeTech LLC recently announced, in a news release, that a large percentage of the spot uranium price rise in 2005 came from speculators and investors? Willmott: If you look at what spot demand is, compared to the long-term demand, usually the spot is around 20 million pounds.
Last year, I think it was around 30 million pounds. (Editor’s note: On January 27, Trade Tech reported slightly less than 30 million pounds for 2005.) That’s 20-30 million pounds of demand out of total demand of 180 to 190 million pounds. Of that demand, this past year, around 10 million – that’s the latest number I know – came from speculators, hedge funds, and the Uranium Participation Corporation (TSE: U). Certainly, it was a very major influence of a very small part of the market. Every week, everybody is excited about what the spot price is going to be on Monday night for UXC or Friday night from Trade Tech. It’s a little bit of the tail wagging the dog. Most certainly, the demand of 10 million pounds or so by the hedge funds had a very significant impact on the spot market for 2005. Interviewer: But will this speculative uranium buying continue? Willmott: Some of these people were able to get in while the spot price was in the low $20’s.
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