Reports related to this article:
Project(s): View 8 related projects in PECWeb
Plant(s): View 8 related plants in PECWeb
Released September 29, 2016 | SUGAR LAND
en
Researched by Industrial Info Resources (Sugar Land, Texas)--Uranium prices may have hit rock bottom, but increased demand for nuclear energy could be right around the corner.
William Paul Goranson, executive vice president ISR Operations, Energy Fuels Incorporated (TSX:EFR) (Lakewood, Colorado), gave a detailed overview of the what, when, why and how uranium prices have dropped to historic lows at MINExpo's US Mine Projects session Tuesday titled "American Uranium -- Staying Competitive in a Low Price Global Market."
Ironically, Goranson had presented a similar topic at MINExpo in 2008, but the message was significantly different.
"The 2008 price of uranium was over $100 a pound," he said. "Today it's just below $24 a pound. No one in the world is making money on it right now, except for [BHP Billiton Limited], and that's a byproduct." (Some uranium is recovered as a byproduct of BHP's Olympic Dam mine in Australia). "The uranium industry produces 168 million pounds per year," he continued. "Global consumption is around 200 million pounds per year."
Currently, consumption is exceeding production, so why the price drop? Goranson explained there are significant sources of secondary supplies going into the market.
"U.S. government inventories are dumping [excess] uranium into the market right now for a lot of reasons," he said. "[Gas centrifuge] enrichment plants are also updating their centrifuges, and that's similar to a refinery squeezing a little bit more gasoline out of a barrel of oil." Both result in an oversupplied market.
Demand for nuclear energy fell dramatically after the 2011 Fukushima incident after a tsunami disabled the power supply and cooling of three Fukushima Daiichi reactors, causing a nuclear meltdown. This caused significant damage to Japan's economy. As a result, all nuclear reactors were shut down, and it created a high sensitivity to nuclear power, Goranson said. It was expected to just take a year or two, but five years later, only three of Japan's 43 reactors have restarted permanently.
Prior to 1984, the U.S. was the largest producer of uranium in the world, Goranson said. Other uranium producers in Canada, Australia and Africa took the lead because their regulatory environment is entirely different from the U.S.
"Whatever commodity you are dealing with, there are multiple layers of government authority [in the U.S.]," he added. "Other countries have one to two agencies you are dealing with, so the regulatory process is more sophisticated and smoother. Then with the collapse of the Soviet Union, the 'Stans' [Kazakhstan, Kyragyzstan, Tajikistan, Turkmenistan, Uzbekistan] all had uranium production supporting the Soviet program, but no longer had a market in the Soviet Union so they brought material into the U.S. market.
"During the last boom 2008, we did not have Kazakhstan as a major market producer," he continued. "They produced less than 5 million pounds that year. Now they are up to 64 million pounds per year. When you look at entire uranium production globally, there was no growth except for Kazakhstan."
This depressed market and prices have caused a chain reaction. Production has dropped 38% in the U.S. last year, with 2016 expected to be the same.
"The sad thing is, we had some high-quality production sources in the U.S.," Goranson said. "Several of them were unable to hit the market when they needed to because of [regulatory approvals]. It used to take a couple years, but now it takes seven to 10 to get a [uranium recovery license]. It's actually faster to license a nuclear power plant than it is to a uranium mine. We have companies that are struggling, since uranium is not sexy any longer."
Despite these issues, demand is increasing in the U.S., which is the largest consumer of nuclear fuel.
"We have 99 reactors, and four being built right now," Goranson said. "The outlook globally is even better.
There are 444 operable reactors in the world; 62 are under construction and 509 rectors have been ordered, planned or proposed, he said.
About 19% of U.S. electricity comes from nuclear energy, but it is the source of 63% of clean air energy in the U.S.
There is also increasing growth in China, India and the United Arab Emirates for nuclear reactors, he said. The main reasons being nuclear power is a way to get a lot of power in a small footprint. The demand for added power is simply because these countries have a growing middle class demanding additional energy for added luxuries. Practically everyone has cell phones and iCloud storage, which requires new cell phone towers.
"Billions of people with new phones and new lifestyles are changing the world's energy needs," Goranson said.
He indicated it is only a matter of time before uranium demand worldwide exceeds production enough to raise prices and make it profitable to build mines again. In the meantime, the industry will look for ways to maintain and grow business.
"An oil and gas guy once told me when you stop growing, you are going out of business," Goranson said. "When you stop looking for your main commodity to feed your mill or feed your operation, all you are doing is coasting to the point where you are at minimal production at high cost. You are just operating. What we call flipping dollars. You are covering your costs recovery and very little else. Some people just continue to produce to defer reclamation costs hoping for better markets."
"Try to maximize your revenue and cut costs," he said. Sometimes that means placing mines on standby until market conditions improve. He also suggested diversifying portfolios. Many uranium companies in Canada, he noted, have switched their focus to gold or other commodities for the time being. He referenced Energy Fuels' decision to start consolidating the uranium industry in 2012. Energy Fuels acquired Uranerz Energy June 2015 and Mestena Uranium LLC in 2016, along with all the assets. Many of the projects are fully permitted and ready to go once uranium prices go up.
"For now, just hunker down and wait this storm out," he said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
William Paul Goranson, executive vice president ISR Operations, Energy Fuels Incorporated (TSX:EFR) (Lakewood, Colorado), gave a detailed overview of the what, when, why and how uranium prices have dropped to historic lows at MINExpo's US Mine Projects session Tuesday titled "American Uranium -- Staying Competitive in a Low Price Global Market."
Ironically, Goranson had presented a similar topic at MINExpo in 2008, but the message was significantly different.
"The 2008 price of uranium was over $100 a pound," he said. "Today it's just below $24 a pound. No one in the world is making money on it right now, except for [BHP Billiton Limited], and that's a byproduct." (Some uranium is recovered as a byproduct of BHP's Olympic Dam mine in Australia). "The uranium industry produces 168 million pounds per year," he continued. "Global consumption is around 200 million pounds per year."
Currently, consumption is exceeding production, so why the price drop? Goranson explained there are significant sources of secondary supplies going into the market.
"U.S. government inventories are dumping [excess] uranium into the market right now for a lot of reasons," he said. "[Gas centrifuge] enrichment plants are also updating their centrifuges, and that's similar to a refinery squeezing a little bit more gasoline out of a barrel of oil." Both result in an oversupplied market.
Demand for nuclear energy fell dramatically after the 2011 Fukushima incident after a tsunami disabled the power supply and cooling of three Fukushima Daiichi reactors, causing a nuclear meltdown. This caused significant damage to Japan's economy. As a result, all nuclear reactors were shut down, and it created a high sensitivity to nuclear power, Goranson said. It was expected to just take a year or two, but five years later, only three of Japan's 43 reactors have restarted permanently.
Prior to 1984, the U.S. was the largest producer of uranium in the world, Goranson said. Other uranium producers in Canada, Australia and Africa took the lead because their regulatory environment is entirely different from the U.S.
"Whatever commodity you are dealing with, there are multiple layers of government authority [in the U.S.]," he added. "Other countries have one to two agencies you are dealing with, so the regulatory process is more sophisticated and smoother. Then with the collapse of the Soviet Union, the 'Stans' [Kazakhstan, Kyragyzstan, Tajikistan, Turkmenistan, Uzbekistan] all had uranium production supporting the Soviet program, but no longer had a market in the Soviet Union so they brought material into the U.S. market.
"During the last boom 2008, we did not have Kazakhstan as a major market producer," he continued. "They produced less than 5 million pounds that year. Now they are up to 64 million pounds per year. When you look at entire uranium production globally, there was no growth except for Kazakhstan."
This depressed market and prices have caused a chain reaction. Production has dropped 38% in the U.S. last year, with 2016 expected to be the same.
"The sad thing is, we had some high-quality production sources in the U.S.," Goranson said. "Several of them were unable to hit the market when they needed to because of [regulatory approvals]. It used to take a couple years, but now it takes seven to 10 to get a [uranium recovery license]. It's actually faster to license a nuclear power plant than it is to a uranium mine. We have companies that are struggling, since uranium is not sexy any longer."
Despite these issues, demand is increasing in the U.S., which is the largest consumer of nuclear fuel.
"We have 99 reactors, and four being built right now," Goranson said. "The outlook globally is even better.
There are 444 operable reactors in the world; 62 are under construction and 509 rectors have been ordered, planned or proposed, he said.
About 19% of U.S. electricity comes from nuclear energy, but it is the source of 63% of clean air energy in the U.S.
There is also increasing growth in China, India and the United Arab Emirates for nuclear reactors, he said. The main reasons being nuclear power is a way to get a lot of power in a small footprint. The demand for added power is simply because these countries have a growing middle class demanding additional energy for added luxuries. Practically everyone has cell phones and iCloud storage, which requires new cell phone towers.
"Billions of people with new phones and new lifestyles are changing the world's energy needs," Goranson said.
He indicated it is only a matter of time before uranium demand worldwide exceeds production enough to raise prices and make it profitable to build mines again. In the meantime, the industry will look for ways to maintain and grow business.
"An oil and gas guy once told me when you stop growing, you are going out of business," Goranson said. "When you stop looking for your main commodity to feed your mill or feed your operation, all you are doing is coasting to the point where you are at minimal production at high cost. You are just operating. What we call flipping dollars. You are covering your costs recovery and very little else. Some people just continue to produce to defer reclamation costs hoping for better markets."
"Try to maximize your revenue and cut costs," he said. Sometimes that means placing mines on standby until market conditions improve. He also suggested diversifying portfolios. Many uranium companies in Canada, he noted, have switched their focus to gold or other commodities for the time being. He referenced Energy Fuels' decision to start consolidating the uranium industry in 2012. Energy Fuels acquired Uranerz Energy June 2015 and Mestena Uranium LLC in 2016, along with all the assets. Many of the projects are fully permitted and ready to go once uranium prices go up.
"For now, just hunker down and wait this storm out," he said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
