The Conversation (0)
Uranium Investing News got in touch with Uranium Energy Corp. to get a low-cost producer’s take on the uranium market.
Interested to hear a low-cost producer’s take on the state of the uranium market, UIN got in touch with Uranium Energy Corp.‘s (NYSEMKT:UEC) CEO, Amir Adnani.
UIN: Amir, to start off with, I want to help investors get a little clarification on uranium prices. It seems that uranium spot prices tend to grab the attention of the masses; however, it differs from the contract price. How should investors judge the strength of the uranium sector given these two variables?
AA: Investors have typically looked at the spot uranium price as a barometer for the state of the sector. What many investors have overlooked is the long-term contract price that currently is at $50 per pound. Long-term contracting accounts for roughly 80 percent of transactions historically. For this reason it’s important for investors to pay attention to both spot and long-term uranium prices. It should be noted that utilities are willing to pay these higher prices to ensure they have adequate supply to fuel their reactors because there is simply no substitute for uranium.
UIN: So far this year, analysts have been pretty optimistic that the uranium market will rebound. Seeing as how UEC is actively engaged in the uranium industry — as a producer, developer and exploration company — what do you see happening in the market in 2014?
AA: We expect to see uranium prices steadily improve over the course of the year for a number of reasons. The fundamentals for nuclear power and uranium are stronger than ever, with more reactors now under construction, planned and proposed than before Fukushima. For example, China has 28 reactors in construction today, with five expected to come online this year.
The uncertainty of Japanese reactor restarts is also beginning to clear up. Utilities in Japan have submitted applications for 16 reactors to be granted permission to restart. Industry analysts are forecasting that six to eight of those reactors will be restarted this year, which will add incremental demand for uranium back into the market. On the supply side of the equation, the current low uranium price environment has led a number of projects in development to be delayed or outright canceled, which will further tighten supply going forward.
UIN: There is a lot of concern relating to the increasing supply risk, particularly for utilities. Can you comment on how uranium supply is affecting the future of nuclear?
AA: Supply risk is increasing due to persistently low uranium prices. The marginal cost for global mine supply is $40 per pound, but spot prices today stand well below that, at ~$35 per pound. This gap has led a number of large-scale projects to be delayed or outright canceled, further tightening supply. In addition, JPMorgan (NYSE:JPM) cited that the market needs to see $75 to $80 per pound to incentivize the development of new greenfield projects. Ultimately, there is global appetite for clean and low-cost base load power. Lastly, uranium only makes up a fraction cost to operate a nuclear reactor.
UIN: The United States is the largest consumer of uranium fuel, but with the HEU Russia/US agreement over, it severely lacks domestic supply. How is UEC positioned to best take advantage of the US’s need for uranium?
AA: That’s correct, many people are often shocked to find that the United States is more dependent on foreign uranium than it is on foreign oil. The US consumes over 50 million pounds of uranium, yet domestic production accounts for less than 5 million pounds.
UEC has positioned itself on being a low-cost domestic producer of uranium to take advantage of this opportunity. We take pride in being able to help the US move toward energy independence.
UIN: And that’s a great position to be in. Thanks for joining me today.
AA: Thank you.
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Related reading:
Where Investors Should Focus in Today’s Uranium Market: Marin Katusa