Alka Singh: No Substitute for Nuclear Power
Source: JT Long of
The Energy Report
Emotional selloffs of uranium stocks in the wake of the
Japanese nuclear disaster created a buying opportunity, says Alka
Singh, a mining analyst at Jennings Capital. In this exclusive
The Energy Report,
Alka runs down the supply/demand problem that could drive prices
Denison Mines Corp.
Laramide Resources Ltd.
Paladin Energy Ltd.
Uranium Energy Corp
Uranium One Inc.
Uranium Resources Inc.
The Energy Report:
We talked a couple months ago, right after the 9.0 earthquake and
subsequent tsunami damaged Japan's nuclear reactor, about the
impact the disaster would have on the uranium market. Tell me,
were you surprised by the short-term reaction, particularly after
the operator raised the emergency level to a seven-the highest on
the scale and equal to what happened in Chernobyl.
I was somewhat surprised by the news reports. The Chernobyl
accident was a much more destructive accident than that of Japan.
The difference in the scale of the two events was enormous. A
meltdown is certainly not a good thing, but the ultimate measure
of a disaster is how much radioactivity is released into the
environment. The Japanese meltdown can be compared to Three Mile
Island, where very little radiation leaked out of the facility.
What happened in Japan was a natural disaster caused by a tsunami
and an earthquake rather than an operational failure. The media
likes to make a bigger deal out of it.
And, what about the reaction of the stock market short term?
The stock market reacted immediately. Uranium producers, uranium
companies and utility companies with nuclear power plants were
down between 60% and 80% from pre-earthquake levels. The market
is emotional. You have to understand that. It is similar to what
happened during the oil spill when
BP Plc. (NYSE:BP; LSE:BP)
stock price went down 70% in a matter of weeks. Other oil
companies suffered as well. Oil stocks eventually bounced back.
We are hoping in the near future people will realize the
supply/demand fundamentals of the uranium market and this strong
selloff will stop.
When we talk about short-term impacts, on what does the length of
the negative reaction depend? Does it depend on how long it takes
to get the reactor fully contained? Does it depend on other
reactors coming back online or being built? What is it going to
take for the markets to shift to more of a long-term
supply/demand fundamental mindset rather than a short-term
reaction to the headlines mindset?
In addition to the speed of the Japanese reaction, the market is
also watching other countries that made noise about being
cautious in the permitting and construction of new reactors.
Slowly the world will realize that we need nuclear power. You
cannot substitute nuclear power with wind, solar or geothermal
power. Once the market realizes that the supply and demand
fundamentals for uranium are strong, that's when there will be a
reversal in the prices. It will be a fast reversal. I would
compare it to what happened in the entire financial market in
2008. It took three to five months for everything to rebound back
to the same level. That is why this is a good buying opportunity
for people who can take some volatility and some risk and stay
there for the long run.
How many countries have canceled or scaled back plans for nuclear
plants? What is the status of nuclear plants in the planning and
Germany took seven reactors off line. In Japan, out of 56
operating reactors 11 in the earthquake and tsunami zone have
been shutdown. Not a single country has scaled back any of the 62
nuclear power plants being built. That means that of the 443
operating reactors in the world about 4% of them were impacted by
what happened in Japan.
Two suppliers are going offline this year. What does that mean
for the supply and demand balance of uranium?
The 443 operating reactors need about 180 million pounds (Mlb.)
of uranium. We are just talking about the ones in operation right
now. Today, the world produces 130 Mlb./year. The 50 Mlb. gap is
filled by the Russian Highly Enriched Uranium (HEU) agreement and
some fuel reprocessing. If the HEU agreement expires, as the
Russian government says it will in 2013, where are we going to
get that 25 Mlb.? Not a single mine in the world produces over 20
Mlb. uranium a year.
Are any new sources coming on line?
The problem is that from exploration to production, uranium mines
take about 10 years to develop compared to a gold mine, which
could be in production in about five years. That is because of
the tough regulatory environment. A few are in the final stages
of that process.
Uranium Energy Corp (NYSE.A:UEC)
just started production last year.
Ur-Energy Inc. (NYSE.A:URG; TSX:URE)
Uranium Resources Inc. (
will both be in production in the next 24 months. But, they'll be
producing very little. When they ramp up, each company will be
producing about 2 Mlb. uranium per year-just 6 Mlb. uranium when
the U.S. utilities alone use 57 Mlb. In 2010, the U.S. produced 4
Mlb. This is the kind of market that we are talking about right
When we talked two months ago, you pegged the long-term target
price at $75/ lb. Is the psychological nuclear fear factor
figured into that estimate? And, is that still your long-term
Yes, that is my long-term estimate. The psychological nuclear
fear factor was figured into it a little bit. But, it will not
last for long. Eventually the market will realize that while the
Fukushima melt down was a bad thing, we have to get our energy
from somewhere. India needs more energy. So does China. So does
South Korea. So does Brazil. So does Russia. Where is all that
energy going to come from? Either you burn coal or natural gas or
run hydroelectric power or nuclear. But most of the hydroelectric
options have been tapped. Using coal will pollute the
environment. So, what do you do? Is nuclear that ugly? Well, not
really comparatively speaking. It's like the BP oil spill, within
six months British Petroleum recovered 60% to 65% of the value
that they lost due to the oil spill. I'm hoping for the same
rebound for uranium.
You mentioned earlier that you saw this as a buying opportunity.
Based on size, location and development stage, where are some of
the best opportunities right now?
That's a great question. All the uranium stocks right now are for
sale. But some stocks are better than others. For now I would
stay with uranium producers with low production costs such as
Uranium Energy Corp.,
Cameco Corp. (TSX:CCO; NYSE:CCJ)
Paladin Energy Ltd. (TSX:PDN; ASX:PDN)
Other companies that are close to production are Uranium
Energy and Uranium Resources. The reason I like them is they use
the in-situ leach recovery (
) process for extracting uranium and their cost would be under
$20/ lb. compared to say a
Denison Mines Corp. (TSX:DML; NYSE.A:DNN)
with operating costs of $45/ lb. to $47/ lb. These two companies
are also in the U.S.-a safe jurisdiction.
You recently wrote about Uranium Energy Corp.'s acquisition of
the Hobson processing plant from
Uranium One Inc. (
. How much output do you see them being able to achieve?
Uranium Energy Corp actually got a good deal when they bought
Hobson plant and the Palangana Project from Uranium One. The
company started production late last year. UEC will be producing
1 Mlb., slowly ramping up to 2 Mlb. ISR facilities are never
large enough to produce 6 Mlb. to 10 Mlb. So, they would be
limited to about 2 Mlb. to 2.5 Mlb. even after ramp up. They
might have to make a $1M investment to get some vacuums that
would help them go up from about 1 Mlb. to 2 Mlb., but that is
What about Uranium Resources? You mentioned that they're in New
Mexico and Texas. It looks like they have two NRC licenses but
they still have some work to do to be profitable. What made you
decide to initiate coverage on them?
The reason I initiated coverage on Uranium Resources is because
the company has 101 Mlb. uranium-the 8th largest in the world.
About 45 Mlb. is amiable to ISR. Uranium Resources already has
its NRC licenses, which are in the process of getting reinstated.
So, they don't have a regulatory risk factor. The company could
probably supply a lot of their uranium to U.S. That is why I like
What about partnerships? Are they looking at joint ventures and,
how can that help them?
Oh yeah. The 45 Mlb. out of the 101 Mlb. is ISR-amiable; the
other 56 Mlb. has to go to conventional milling. Building a mill
could cost north of $250M-a steep price for a company with a
market cap under $200M. A joint venture with
Laramide Resources Ltd. (TSX: LAM)
, two companies in the area, could provide synergies for joint
milling. But we have to wait and see. Right now, I'm not giving
any value to the conventional milling at all. I'm deriving my
target price of $5 based on the ISR project.
What are the prospects for Ur-Energy's Lost Creek Project in
The company is waiting for its final NRC permit. We expect the
company to get approval by mid-year and start ISR production
early next year. ISR is an easier process with low operating and
capital costs. All three companies could realize cash-costs lower
Any other companies we should be watching?
I would stay away from high-cost producers and companies that
have resources, but are in the early exploration stage, trying to
ride the uranium bull market of mid-2010 into early 2011.
Good advice. Any other uranium issues you can see on the horizon
that might impact some of these companies?
Every uranium investor should watch oil prices. Generally oil has
a good correlation to uranium prices. In 2007, we saw uranium
prices go up to $139 at the same time oil hit its annual high.
Now we're seeing oil reach an all-time high again. It has backed
up a little bit, but I think oil over $90/barrel is always very
positive for uranium.
Prior to taking a position as mining analyst at
was the managing director and senior metals and mining analyst
at Rodman & Renshaw in New York City for two years.
Previously, Ms. Singh was a vice president covering the metals
and mining sector in Canada at Merrill Lynch, and prior to that
she was an associate analyst covering the gold and base metal
companies at Orion Securities Inc. Ms. Singh holds an MBA from
Schulich School of Business, York University in Toronto, Canada
and a Bachelor of Science in geology from the University of
Delhi in India.
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1) JT Long of
The Energy Report
conducted this interview. She personally and/or her family owns
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Energy Report:
Uranium Energy Corp and Ur-Energy.
3) Alka Singh: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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