It’s all happening now in the energy sector isn’t it? The oil price is up at US$62. Iran has apparently kidnapped some British sailors with the intent of trading them for, a) the release of Iranian officers held in Iraq, or b) a softening in U.N. sanctions against it. Then again, it could be some local commander got it in his head that it was a good day to kidnap some British sailors. Who knows why these things happen?
And what if no one is really in charge? The slick presentation of the news on cable media leads you to believe that everything that happens in the world happens as a result of some carefully calculated intention by a shrewd strategist. The scary truth is most politicians make it up as they go along, and if they do something that looks smart or far-sighted, it’s purely accidental. Take Peater Beattie.
Did you see the awesome contortions to Peter Beattie’s uranium mines policy this weekend? Armed with an academic report from the University of Queensland’s Sustainable Minerals Institute that concluded a uranium mining industry wouldn’t hurt Queensland’s coal industry, Beattie is the latest Labor politician to give up on the “no-new-mines” policy.
Maybe Beattie should come on down here to Melbourne and try his hand at the diving competition at the FINA world championships. It was a gorgeous exit from a policy that looks increasingly goofy as uranium prices climb to $100. This raises two interesting questions about Australian uranium.
First, which gold companies in Queensland are really uranium companies in disguise? You’d think geologists would have already had a pretty good idea where Queensland’s best uranium deposits are located. And you’d think a smart mining company would have bought up the properties where those deposits are located and simply waited for a change in the policy to seek the appropriate permitting for a new uranium mine. We’d think all that, anyway. We’ll see in the coming months.
The second question is whether the best equity way to play the uranium story is in the miners, or in uranium enrichment. You are probably already familiar with the supply/demand dynamics driving the uranium price. Current production from global uranium mines only supplies about 55% of the demand for nuclear fuel for the world’s fleet of 435 operating nuclear reactors. The difference is made up from previous stockpiles of uranium or ex-military weapons-grade uranium and plutonium, which is mixed with ore to produce commercial fuel.
The problem lately is that those ex-military stockpiles and civilian stockpiles are nearly exhausted. That leaves mine production. And with the flooding last year of Cameco’s Cigar Lake mine (17% of global production), there is, as General Buck Turgidson from Dr. Strangelove might say, a uranium mine production gap!
This bodes well for higher spot uranium prices. Yet keep this mind, the cost of uranium as fuel makes up less than 15% of the total cost of running a nuclear power plant. This means spot prices could go much, much higher and not really affect the utilities.
The key factor in the whole business might be enrichment. All mine production must be enriched before it can be used as nuclear fuel. Yet there are only a handful of publicly listed enrichment companies in the world. And for the history of the entire industry, there’ve only been two ways to enrich uranium so that it becomes fuel. There’s the gaseous diffusion process and the centrifuge enrichment process.
We know equally little about both. But we are also interested in the fact that General Electric recently paid $20 million to license the technology of Australian firm Silex, which claims to have a third, laser-based way to more cheaply enrich uranium into nuclear fuel. GE is a US$368 billion company. For a company that size, $20 million is a rounding error on an accounting statement. So it’s investment doesn’t necessarily indicate that a new era of low-cost commercial uranium enrichment is at hand. But we’ll be keeping an eye on the story.
Three cheers for Yang Wu, a man whose Chongqing has become an island in the big empty foundation of a huge commercial building. Mr. Yang refused to be evicted from his house like his neighbours to make way for a new commercial structure. So the diggers simply excavated everything around his house and left the house standing, for now. Chongqig, which sits on a fork in China’s Yangtse river, is growing by 500,000 human beings a year. How long can one man hold out against a seething tide of humanity? Not long. But we admire his resolution.
Markets and Money