I am listening to the segment with Brendan Kyne that was on BNN earlier this week. Here are my notes on his fundamental outlook on the uranium market:
4/11/07
Brendan Kyne, CEO and CIO, Leeward Hedge Funds
Move in uranium is sustainable. He was asked a year ago if we were at the end of the uranium cycle, uranium was $30/pound at that time. He sees $150-$200/pound in next two years.
Drivers
Production shortfalls – last year the top ten producers all had production shortfalls. Current production only supply 59% of consumption. New energy demand for uranium is growing at four times the rate of new mineable supply. The gap is growing wider
In the past the shortfall was covered out of stockpiles that had been accumulated during the bear market, some from speculators, utilities that have traded some of their mandated 2 ½ year inventory, de-commissioned weapons grade uranium from the Soviet Union.
Stockpiles are now dwindling fast, hence the spot price increase.
How much of the current price is speculation?
Explanation of how uranium is priced. One downtick in six years. Compare that to other commodities, this is an amazingly consistent up-curve. Up until recently there has been little speculation in the commodity. Sprott has set up a fund that invests in the physical, but it is not easy to speculate in this, no futures market, storage issues.
Number of plants is growing dramatically. There have been 17 applications filed in Texas alone. Every year there will be more reactor start-ups than the prior year for the next seven years. That’s all fixed demand. Plants will not be cancelled because of fuel price increases, they are multi-year, multi-billion dollar projects. Fuel costs are still less than 3% of plant operation costs. Natgas can be up to 40% of the cost structure for gas-fired plants.
What about substitution?
The volume of thorium that you could bring on to the market is immaterial to the level of demand. There are utilities in the market right now looking for 50MM pounds of uranium.
Ranger Mine in Australia supplies 11% of global supply. They will have a 35% production shortfall in 2008. Where will that come from? Thinks Cigar Lake will come in much later than 2010. |
