PAUL VAN EEDEN: THE FUTURE OF URANIUM
http://www.kitcocasey.com/displayArticle.php?id=54

This is the last of a three-part interview with Paul van Eeden (www.paulvaneeden.com) conducted on March 8, 2005 during the PDAC Conference. Paul, formerly Managing Editor for Doug Casey’s International Speculator and now the publisher of his own weekly stock alert service for high net worth investors, is one of the most original thinkers and analysts working in the resource business today.

Let’s change tacks a little bit, Paul. What are your thoughts on uranium?

PVE: I’m very bullish on uranium. During the 1970s, there was massive expansion of nuclear power production. Demand for uranium for these nuclear plants was increasing and supply wasn’t keeping up. The utilities started panicking because in a nuclear power facility, your biggest cost is the capital to build it. The actual fuel cost for uranium is a very, very small component of your production cost. So, to the utilities, it’s fairly irrelevant what the price of uranium is. What’s relevant is the fact that you cannot run out of fuel. In the ‘70s, the utilities panicked because they saw that current uranium mine supply was not keeping up with the growth in demand. They started buying uranium in the market and stockpiling it so that they wouldn’t run out. And the price of uranium obviously skyrocketed. Now, the interesting thing is that uranium price peaked in 1979 at an average price of $43 per pound. It peaked in 1979 because that was the first year that mine production met current demand. Right now, we’re consuming around 170 million pounds of uranium annually. We’re producing on the order of 80 or 90 million pounds. Let’s say we produce 85 and we consume 170. That’s 50 percent. We need to double uranium production before we meet today’s demand. And in the United States since 1979, uranium demand has increased 35 percent without one additional reactor being built.

Why is that?

PVE: Because the reactors, when they were built, were over-designed. And so they figured out that they could increase capacity. The utilization could increase. By the way, these uranium reactors were all slated to be shut down, but because they were so over-designed, they’re now finding that these things have a lifespan far in excess of original designs. Most of these things are giving extensions on their projected lives. About 16 percent of the world’s electricity is being generated from nuclear power. 20 percent of U.S. electricity comes from nuclear power. 25 percent of Japan’s electricity comes from nuclear. 40 percent for South Korea. 80 percent in France. I was flying through London and I picked up a newspaper and the front was an article that reported a study commissioned by the British government to figure out how they were going to meet the Kyoto protocol. The commission found unequivocally that there’s no way they can do it without going nuclear. Canada conducted a similar study with similar results. China has stated that it is their goal to get either 24 or 26 percent, I can’t remember exactly, of their electricity from nuclear in the next 20 years or so. They’ve also stated that they’re going to build between one and two nuclear power plants every year for the next 20 years.

That's an incredible increase in consumption.

We’re 50 percent short of demand already. The uranium price will not stop rising until current supply meets current demand. Just like in the ‘70s. Nothing has changed – utilities still cannot run out of nuclear fuel. Nuclear power generation is increasing, not decreasing. The drawdown of U.S. government inventories has basically come to an end. We’ve used up probably 50 percent of U.S. government inventories over the last 25 years and I don’t think we’re going to see any further drawdowns. The U.S. now wants to become self-sufficient in the nuclear industry. That means production, conversion and enrichment all within U.S. borders. Right now, there’s no conversion facility in the U.S., but they’re building one. That means uranium is becoming strategical