GOVERNMENTS around the world see nuclear energy generated from uranium, as one of the only viable options to combat climate change and global warming, as well as meet the demands from a growing global population.
However, the mention of uranium usually conjures up memories of terrible accidents such as the Chernobyl incident in the 1980s.
The use of nuclear power stations has been steadily increasing over the last decade. According to the World Nuclear Association (WNA), 52 are currently under construction with 135 planned and almost 300 proposed for the future. The UK Government recently announced plans for 10 new potential sites. The need for nuclear energy has also been driven by emerging economies where they are generally short of power. China, in particular, has plans to reduce its dependence on fossil fuels over time.
With the increase in demand, there is a concern as to whether the new reactors will be able to secure enough uranium to meet their long-term requirements, since nuclear reactors use about three times the level of uranium to fire up as they need once they reach steady operation. Therefore any pick up in demand for uranium could push up prices and with it, the profitability of producers.
Since the early 1990s, a large part of the demand for uranium has been fulfilled from decommissioned Russian nuclear weapons. It had been thought that this source alone could supply the market for some years to come. However, there is an upper limit on how much material can be processed and the facilities have been run to capacity in recent years. To increase the supply from this source would require the building of additional facilities and as far as we know, none is planned.
Predictably, mining companies have been increasing production because of the positive outlook. It is estimated that supply will have to increase by 30% over the next five years in order to meet demand.
The WNA estimates that Australia holds a reasonable amount of uranium resources as does the US, South Africa, Namibia, Brazil, Niger and Russia. However, the Cigar Lake project in Canada potentially has the world’s largest undeveloped high grade uranium deposit. This is part owned by Cameco, the Canadian mining company which currently produces just under one sixth of the world’s mined uranium supply. Unfortunately, mining has been delayed following floods. The project is now not expected to be operational until 2011 at the earliest and delays may even run through to 2015. Elsewhere, plans to expand BHP Billiton’s Olympic Dam mine in Australia have also suffered setbacks. The industry is now relatively concentrated, with Kazakhstan representing over 20% of global mine supply.
The price of uranium per pound has fallen substantially from a peak midway through 2007 of about $140 to a recent trading range of $40-$50. Much of the fall can be blamed on the decline in electricity demand as the world moved towards recession. Nevertheless, the price of uranium has recently nudged up, partly because of the disruption to supply and partly because of the expectation of a global recovery, however fragile.
Private investors seeking exposure to uranium can achieve it via share holdings exposed to the uranium sector either through pure exploration companies which are not yet producing or those with existing profitable mines and operations. Other ways to gain access could be through physical funds such as Exchange Traded Funds or by investing into a collective investment scheme which invests in uranium. However, investors need to be wary as small cap stocks and specialised funds can be highly illiquid, making trading sometimes a difficult process. Indeed the fact that stock prices of major blue chip miners can be so volatile should sound as a note of caution to tread carefully when choosing investments and therefore we recommend always seeking professional advice.