| SUMMARY: TradeTech LLC Chief Executive Gene | | | | point where the cheap stuff has been sold. |
| Clark talked with StockInterview about the | | | | Now, we have to actually spend some money, |
| uranium bull market, where his price models | | | | some capital, to build new facilities, new |
| show uranium prices heading and when to | | | | mines and new mills. That was, I think, the |
| expect the peak of the current upward cycle | | | | earliest signal of the price needing to |
| of the bull market. When will "hard" times | | | | adjust.StockInterview: Isn't there a ton of |
| again hit the uranium market, and how long | | | | hype across all media channels about the |
| will the trough last? And what does the | | | | "nuclear renaissance" and the demand for more |
| future hold for the uranium price? An | | | | nuclear energy?Gene Clark: |
| industry insider gives us his | | | | |
| insights.StockInterview: When the uranium | | | | First of all, all the hype about nuclear |
| bull market began, did you foresee $40/pound | | | | renaissance is really in the United States. |
| uranium, now that the spot price has risen | | | | The Chinese have had plans to expand for a |
| above this level?Gene Clark: I don't think | | | | long time. The Japanese have been steadily |
| any of us saw $40 per pound coming. We had | | | | adding new capacity. Koreans have been adding |
| price projections at the time that indicated | | | | new capacity. Indians have been adding new |
| probably $25 per pound, which would be a long | | | | capacity all along, all the way through this, |
| term equilibrium price in constant dollar | | | | even before we started this discussion on |
| terms. But, I think it was a surprise the | | | | nuclear renaissance. I think that phrase is |
| price went up so high. I think what's going, | | | | really focused more in the United States, |
| the biggest factor right now, is the advent | | | | which really hasn't ordered a plant since |
| of the so called hedge funds or speculator | | | | 1976 or something like that. There is a boom. |
| funds and other such groups. The price | | | | Maybe it's the uranium |
| started to go up, and they came into the | | | | renaissance.StockInterview: Is all of what |
| market with the express purpose of buying for | | | | we've been reading just plain hype?Gene |
| holding and then selling into the market | | | | Clark: There is some hype, but there is also |
| later to realize the trading profit. In 2005, | | | | some substance. A part of it is certainly a |
| the hedge funds were responsible for | | | | change in public attitude about nuclear |
| purchasing about 10 million pounds of the 29 | | | | power. If I was riding on an airplane, ten |
| million pounds purchased. I think the market | | | | years ago, and someone asked me what I did |
| is now finally adjusting to the realities of | | | | for a living, I was guaranteed to have a |
| primary supply and demand. It's been a | | | | lousy trip, arguing about nuclear power. When |
| depressed market for 20 or 30 years, | | | | I mention it now, I get a positive response. |
| primarily from the draw down of excess | | | | There's been a marked shift in public |
| inventories, and what we call secondary | | | | attitude about nuclear power. From the |
| supply.StockInterview: Will the speculators | | | | standpoint of the utilities that would be |
| remain active in driving the spot uranium | | | | ordering nuclear plants. To the extent that |
| price higher?Gene Clark: I think there is | | | | they need new capacity, looking at nuclear |
| still some room for further speculation | | | | now is not off the drawing boards, partly |
| activity. Uranium Participation Corporation, | | | | because of public attitude. The industry has |
| for example, is rumored to be about to come | | | | been moving through this trough period, |
| to the equities market again to raise funds | | | | preparing itself for a new era. It remains to |
| for another purchase. They're asking for | | | | be seen when the first order comes. But when |
| authority to buy UF6, as well as U308, and | | | | the first actual order of a nuclear power |
| different forms of uranium than they were | | | | plant, along with the license application |
| locked into before. Whether it be at the 10 | | | | does come, I think you'll see several U.S. |
| million pound level (size of purchase), I | | | | utilities following, probably five utilities |
| think it kind of depends on where the market | | | | very actively involved.StockInterview: When |
| goes. If it tends to flatten out, then I | | | | will that actually happen?Gene Clark: I think |
| think there's going to be obviously less | | | | it will come within the next five years, the |
| interest on their part. When they were active | | | | ordering process. Of course it will be |
| in the market, they, of course, wanted the | | | | probably another eight years before we |
| price to go up. Therefore, they weren't too | | | | actually see the first power plant from that |
| careful about what they paid for uranium. I | | | | process. We're talking probably about 13 |
| think that's a part of it. In the long run, | | | | years. That's how long it takes. You can |
| it was due for a readjustment to reflect | | | | actually construct one in 48 months, but you |
| prices of the cost of new production | | | | have to have been through the licensing. If |
| facilities. But, the hedge funds came in and | | | | you don't believe the anti-nuclear people are |
| overdrove the market. Eventually, what it's | | | | going to be psyched up to fight the first |
| going to wind up doing is, if they sell off, | | | | plant coming through, then you'd be very |
| it could have the impact of driving prices | | | | naïve. The first one is going to be more |
| back down below where they would otherwise | | | | difficult and take more time, I |
| have gone.StockInterview: Did the speculators | | | | think.StockInterview: One anti-nuclear group |
| interfere with the trading efficiency of the | | | | told us they do not believe we'll have more |
| uranium market?Gene Clark: In theory, | | | | nuclear power plants in the United |
| speculators come in, tend to take the risk | | | | States.Gene Clark: That's possible, but given |
| and smooth out market prices. But, it never | | | | the current circumstances, my guess is we |
| really works out that way. They always come | | | | will have more nuclear plants. We need the |
| in and only take the risk, if there's an | | | | capacity, whether we're going to build coal |
| opportunity to make money. So some people | | | | plants (or other types of power generating |
| make a lot of money. It does tend to upset | | | | plants). I just came from California, moved |
| the market. If you get away from the primary | | | | here (to North Carolina) six months ago. They |
| users of uranium and primary producers of | | | | were talking in California about building |
| uranium as your market participants, then you | | | | gas-fired plants for base load generation, |
| tend to introduce more noise than you would | | | | which is the most ridiculous thing you can |
| like.StockInterview: With that in mind, in | | | | imagine. The plants are cheap to build, but |
| which direction are your price projections | | | | the fuel cost is exorbitant. I did a speech a |
| going?Gene Clark: We're actually updating our | | | | couple of years ago, having looked at the |
| uranium price forecast right now. We haven't | | | | Energy Information Administration's |
| decided on a reference case yet. The | | | | projections of gas demand. All the growth in |
| reference cases we're looking at will peak at | | | | natural gas demand is going to be in the |
| about $50 to $55 per pound in about three | | | | electric utility sector. We are going to be |
| years, and will then drop off pretty | | | | importing 60 percent of our gas supplies by |
| drastically. It has to do with a selling of | | | | 2020. Does that make any sense? No. We have a |
| the speculator reserves, the uranium that's | | | | lot of coal, but there are lots of complaints |
| being held (for speculative purposes). I can | | | | about coal burning. In our state of North |
| see it coming back down to $30, maybe below | | | | Carolina, the attorney general is actually |
| $30 per pound. Then, in the long run - out | | | | suing the Tennessee Valley Authority (TVA) |
| through 2020 - getting easily back up over | | | | for the damage from coal burning of the TVA's |
| $40 per pound.StockInterview: Are you | | | | power plants in the adjacent state, in |
| predicting a down cycle during the course of | | | | Tennessee. There's going to be continued |
| the uranium bull market?Gene Clark: Yes. It's | | | | pressure on coal burning. I think nuclear has |
| pretty consistent with everything we're doing | | | | as good a shot as any in terms of new |
| with the changes in requirements, in | | | | capacity.StockInterview: Some critics have |
| different cases of high, low, and medium | | | | argued China and India will not be able to |
| demand. Our modeling system is projecting | | | | afford the massive nuclear power plant build |
| this. It has to do with the supply and demand | | | | up they've envisioned.Gene Clark: If you |
| balance and the cost on the margin. The way | | | | think the Chinese are going to have any |
| to describe it is that prices have come to a | | | | problem financing things, you'd better think |
| point now of higher than we would have | | | | twice. Let's focus on India. India is a clear |
| projected them to be, such that over-supply | | | | case where, and it is a good rule of thumb, |
| is going to evolve. The large low cost | | | | one percent growth in gross domestic product |
| projects will reach a point where supply then | | | | requires one percent growth in electricity |
| overshoots demand for a few years, which | | | | requirement. For India to grow economically, |
| causes the price to come back down. Then | | | | it needs electric power. Where are they going |
| demand growth, in the long run, picks up and | | | | to get it? They have coal plants there, as |
| puts a lot of pressure on the supply market | | | | well. Once you use up all your hydro |
| to be able to meet the demand. So you wind up | | | | capacity, you really don't have much to |
| with pressure toward the end of the | | | | choose from, except coal, natural gas, and |
| period.StockInterview: But the markets are | | | | nuclear. To the extent that they can have |
| finicky, filled with variables, and can | | | | economic growth and export income, coming |
| frequently trick price models.Gene Clark: | | | | into their country, they would be able to |
| Here's what it would take to shoot that down: | | | | finance nuclear power plants. My guess is |
| We have a problem with small numbers, and | | | | they're going to get the vendors of the |
| there are some very large projects - Cigar | | | | nuclear plant to help finance |
| Lake, for example. The expansion of Olympic | | | | them.StockInterview: Are you talking about |
| Dam in Australia would be going from about 12 | | | | the French?Gene Clark: Framatome - the |
| million pounds of production to over 30 | | | | company that constructs the nuclear plants. |
| million pounds, if they finish. If you shift | | | | Financing is generally part of the package. |
| that out by four or five years, or if the | | | | The first plants in China were basically |
| owner decides, "No, we're not going to expand | | | | financed by the French government. If the |
| at all," you have a drastic effect. Then you | | | | French go into India, you'll see the same |
| would wind up with $100 per pound uranium, I | | | | thing. The Russians have financed plants for |
| think.StockInterview: What are your estimates | | | | developing countries. That's not unusual for |
| on the peak price years and the bottom | | | | them to do. The United States may, or may |
| years?Gene Clark: A lot of things could | | | | not, get involved. I think there have been |
| change, but here is what we're looking at. In | | | | some types of guarantees in the past, but not |
| one case scenario, the speculators are really | | | | at the same level as the Russians and French |
| going to stay out of the market and holding | | | | do it. I think those are the big choices. I |
| onto their stuff for a long time. If so, then | | | | wouldn't be surprised to see the South |
| we're going to be at the peak by the end of | | | | Koreans involved in the reactor export |
| this year. If they stay active in the market | | | | market. They've pretty much developed their |
| and buying, then that stretches it out | | | | own technology now. They have the capability |
| further. Depending on the scenario, we see | | | | of building 100 percent of a nuclear power |
| the peak possibly at 2008 or so. I would say | | | | plant in South Korea: the pressure vessels, |
| we're looking at a trough around the | | | | all the steel requirements. They can do it |
| timeframe of 2011 to 2013. Then back up after | | | | all. We really haven't seen them export yet, |
| that.StockInterview: How do you arrive at | | | | because they've used up all their |
| your weekly numbers for the spot uranium | | | | manufacturing capacity for their own program. |
| price?Gene Clark: We get our data from all of | | | | At some stage, I wouldn't be surprised to see |
| the key sources: the utility fuel managers, | | | | that happen. And I think they would be able |
| sales staff and management of uranium | | | | to finance reactor export |
| producers and processors, and uranium | | | | sales.StockInterview: How are the U.S. |
| traders, brokers and asset managers. Some | | | | utilities going to fare in getting their |
| are, of course, more cooperative than others, | | | | "share" of uranium to fuel our domestic |
| and whom we call depends on the type of | | | | nuclear power plants in the context of the |
| information we are seeking. Since our price | | | | apparent overwhelming Asian demand?Gene |
| indicators are a judgment call, we often | | | | Clark: In reality, the U.S. utilities, which |
| focus on the losers in particular recent | | | | tend to wait longer to contract, may be the |
| transactions, as those will be the next to | | | | ones on the losing end because the Chinese |
| make offers in the market.StockInterview: | | | | and the Indians will contract early. The |
| Let's back up a bit. Why has uranium gone up | | | | implication of current group-think is that |
| past the levels of the "cost of production," | | | | the Chinese and Indians are not going to be |
| which would place the spot price between $25 | | | | able to find enough uranium for their new |
| and $35/pound?Gene Clark: The biggest factor, | | | | plants. But, they are committing for supplies |
| in signaling the market, was when utilities | | | | way out into the future. When the U.S. |
| went out for long term bid requests. They | | | | utilities come to the market, they're going |
| found they reached a period in which | | | | to look around say, "Oh blankety- blank, what |
| producers would have to build new facilities. | | | | happened? Where's the uranium?" They'll be |
| Producers building those facilities felt, "I | | | | the ones that sat around. I think that is |
| have to make at least enough profit to cover | | | | what's going to happen unless things really |
| a return on the construction costs for these | | | | change in the way contracting is done in the |
| facilities." That was much higher than the | | | | United States.James Finch contributes to and |
| market at the time. Basically, you reached a | | | | other publications. |