It has been a while since I last commented on this space. Uranium miners have taken a beating after the March 11th disasters that crippled the Fukushima Dai-ichi nuclear plant in Japan. Questions have surfaced about the safety of nuclear energy, and whether the nuclear renaissance will happen. Looking at the long term energy needs of the planet, it seems inevitable. Short term there will be delays and temporary suspensions, but ultimately we will have to address the upcoming energy resource shortfall.
Nuclear energy produces electricity for one in five homes and businesses in the United States. Half of the United States nuclear fuel is derived from dismantled Russian nuclear warheads. This program will be halted in 2013. 104 reactors are located in 31 states. It accounts for 70% of all emission-free electricity generated. Only 30% of electricity generated in the United States is emission-free. Uranium fuel comes in small ceramic pellets about the height of a quarter. These pellets provide the same amount of energy as one ton of coal, 149 gallons of oil, and 17,000 cubic feet of natural gas. The average nuclear reactor produces enough electricity for 750,000 homes. The total spent fuel for a year would fill up the cargo area of a small truck. Newer technologies will be capable of recycling 90% of spent uranium fuel. It is estimated these technologies will prolong the world supply of uranium more than 60 times.
In the United States, energy companies are developing license applications to build as many as 30 commercial nuclear reactors. Companies have already submitted applications to the NRC to build commercial reactors under the new licensing rules. By 2030, the United States will need approximately 260,000 megawatts of new electrical generating capacity-- 25% more than current production. 260 large power plants will be needed to accommodate this increase. The cheapest way to produce baseload electricity is nuclear. Over the past 10 years, nuclear produced electricity has decreased in costs by 30%. Only 25% of production costs are fuel. This creates price stability. Between 80% and 90% is the average fossil fuel cost.
By 2050, world energy consumption will double and electricity demand will triple. 438 world nuclear reactors in 30 countries produce 16% of electricity. As of March of 2010, 108 reactors are either under construction or planned for completion this decade. Nuclear power generation is used as a high percentage of total production in:
- European Union-32%
- South Korea-37%
There will be significant changes in the nuclear industry over the next ten years:
- 108 new reactors will be built
- 19 reactors will be shut down
- In 2019, 527 reactors will be operating
- Increase of 109 GWe
2009 global uranium production by geography:
- United States-3%
Cameco (CCJ) has a 10.7 billion market cap. It currently produces 16% of the world's uranium through its mines in Canada, Kazakhstan, and the United States. It has 480 million pounds of proven and probable reserves. Its global exploration program is finding new resources in areas like Australia. Over the past five years, Cameco has generated over $2.5 billion in cash flow. Its fuel services division controls about 35% of the western world's capacity to generate uranium hexafluoride. Cameco also provides electricity generation through its Bruce Power Limited Partnership. I wrote a more in depth article about Cameco here. Cameco may be the safest way to play nuclear outside of utilities. Its legacy contracts provide protection from large decreases in the price of uranium. This is a very good long term investment.
Denison Mines (DNN) has a 800.9 million market cap. Denison has a diversified resource base, with acreage in Canada, the United States, Mongolia and Zambia. It is a play on uranium and vanadium. Its Wheeler River area is a world class find. Denison is the operator and owns 60% of the project, which is large in size and high in grade. Indicated resource in Pheonix Zone A is 89,900 tonnes. The average grade is 18% and 35,638,000 total pounds of uranium. Grades this high have only been seen in two other plays--Cigar Lake and McArthur River. For more information about Denison go to this link. In 2010, Denison's cost per pound of uranium were $49. There have been some negative comments made about the cost of Denison's production. However, Denison could see a huge appreciation in stock value if Wheeler River goes smoothly, especially if Cameco's Cigar Lake project continues to have problems.
Uranium Participation Corp. (URPTF.PK) is managed by Denison and was formed in 2005. It is not a miner, but participates in uranium by holding the metal as an investment holding company. Uranium Participation invests in two forms of uranium, uranium oxide in concentrated form and Uranium Hexafluoride. It is a direct play on the price of uranium -- a pure uranium price trade. It is the only way I know of for an investor to trade the price of uranium. Although I am bullish nuclear, this is a very risky trade.
Paladin Energy (PALAF.PK) has significant upside going forward. It has a total resource inventory of 591.4 Mlbs. of uranium. It has large projects in Canada, Australia, Niger, Namibia, and Malawi. Last quarter Paladin had record sales of 1396000 lbs. at US $66/lb. The Kayelekera mine had record production of 253036 for March, and the Langer Heinrich mine had a cost of sales of US$28/lb. These two mines created cash flow of $28.3 million. Gross profit increased by $18.4 million. The March of 2011 quarter has improved significantly year over year. Paladin is a key player in the world uranium market. As reactors come on line, it will benefit significantly. In 2010, Paladin's costs per pound of uranium were $25. Paladin is one of the better names in the industry. It has the abililty to increase production and has done a good job of keeping its costs down.
Uranium One Inc (SXRZF.PK) has a 3.53 billion market cap. The first quarter or 2011 saw total production increase 33% (2.4 million lbs.) year over year. It produced an operating cash flow of 6 cents per share. Uranium One's production guidance is significant. In 2010, it produced 6.8 million lbs. of uranium. That number increases to 10.5 million pounds this year and 12.5 million pounds in 2012. Uranium One's 2011 estimated cap ex is $234 million. Most of this will be spent in Kazakhstan ($175 million). In the first quarter of 2011, it made 2 cents/share as opposed to the first quarter of 2010's loss of 2 cents/share. In 2010, Uranium One's cost per pound of uranium was $19. Uranium One has some of the lowest production costs when compared to its competitors. It will be very interesting to see if the company can meet production guidance. It has a large interest in Kazakhstan, which has some of the best uranium in the world.
Mawson Resources (MWSNF.PK) has a market cap of $105.73 million, with acres in Finland, Sweden, and Peru. Mawson's Finland projects have shown promise. These were acquired from Areva in April of 2010. Rompas is described as having bonanza grades. 296 sites are identified over 6 km strike containing both uranium and gold. Rompas is 100% owned. Uranium exceeds 1% concentration in some areas. It also has a uranium resource in Sweden. Mawson has a copper and gold deposit in Peru, where the gold is considered high grade, and near term production is expected. Mawson is a speculative company. Since Mawson has such a large portion of its revenue coming from copper and gold, I would look elsewhere until there is a better idea of the resource at Rompas.
Mega Uranium (MGAFF.PK) has a 114.25 million market cap. Mega has two Australian projects in feasibility and pre-feasibility stages. It has other exploration projects in Australia, Cameroon, and Canada. Mega is currently focusing on two projects, Lake Maitland and Ben Lomond. Lake Maitland has 23.8 Mlbs. indicated and 2.2 Mlbs. inferred resource. Ben Lomond has 7.9 Mlbs. indicated and 2.8 Mlbs. inferred resource. Its Maureen project has 5.95 Mlbs. indicated and .38 Mlbs. inferred resources. The Lake Maitland mine and processing facility will be completed in 2013. Japan Australian Uranium Resources Development was farmed into its Austrailian projects. JAURD was formed for the purpose of securing Australian uranium and has three Japanese utilities as shareholders. Itochu Minerals & Energy of Australia is part of the JV for the purpose of securing funding to complete the uranium projects. IMEA and JAURD are responsible for funding 35% of development costs. Mega is currently preparing a feasibility study and working on getting final federal and state mine approvals. Mega is positioned in a very nice area, with access to Japan's developed nuclear program. It also has access to South Korea's and China's growing nuclear programs.
Energy Fuels (EFRFF.PK) is currently developing what might be the first new uranium / vanadium mill in 30 years, and is focused in Colorado, Utah, and Arizona. It has two fully permitted conventional mines. Like Denison, Energy Fuels mines both vanadium and uranium. Energy Fuels states the area it operates in has the highest grade uranium deposits available in the United States. Energy Fuel's Colorado Plateau has measured and indicated resource of 6445926 lbs. and inferred resource of 4345850 lbs. It also has 4000 acres in the Arizona Strip. Energy Fuels has a JV with Royal Resources. Royal will pay $2 million over the next five years to gain a 50% position. The Pinon Ridge Mill is estimated to start producing in 2012. Although speculative, Energy Fuels has merit. Its new mill could provide significant revenue, as several competitors are in the area utilizing in-situ production.
Areva SA (ARVCF.PK) is one of the biggest players in the uranium industry. Since 2009, Areva has been the number one producer worldwide. Using full year numbers for 2010 and comparing to full year 2009 backlog increased by 2%, revenue increased 6.7% and Operating income increased 61%. The company has sold non-strategic assets to focus on nuclear. From 2001 to 2010, Areva had revenue growth of 30%. 95% of nuclear utilities are Areva customers. Since 2001, it has increased production by 30%. Although Canadian production has decreased, increased production in Niger and Kazakhstan. It has exploration properties in Mongolia, Jordan, Central African Republic, Gabon, Namibia, South Africa, and Australia. Areva is benefiting from an increasingly "Green" environment. It also has businesses in other environmentally favorable businesses such as wind. Areva is a very good company, which will profit from increasing sources of energy that leave little or no carbon footprint. It is a great way to play nuclear expansion without the risk of smaller companies.
There is no doubt that increased uranium production is needed. In 2013 the Russian HEU program will take a significant amount of uranium fuel off of the market. This should increase the price of uranium, which should continue to motivate companies to increase production. This is the first of a three part series. If I miss any names please feel free to let me know.
Disclosure: I am long DNN.