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