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« Uranium to Fuel Chinese Economic Advance | Main | URANIUM STOCKS: The ticker symbol nightmare! »
Sunday
Feb112007

Uranium: How high could the price go…$576?

As uranium prices continue to rocket upwards vast profits are being made in uranium stocks. However it is impossible to ignore the question: How high could the uranium price go?

This article is meant to be provocative and stimulating with the aim being to encourage more discussion resulting in the picture for uranium becoming clearer for investment purposes.

Oil is generally considered the staple fuel of the world, along with the other fossil fuels. It recently made an all time high, but when you take inflation into account oil was at its most expensive in 1980 when it reached levels of around $37.75 a barrel which is $92.26 in today's US dollars. As oil prices rise, the cost of energy from oil-powered plants rises considerably.

oil11feb07

For example if the price of oil doubles, from $60 to $120 then the cost of power from oil powered stations increases by 40%. As the cost of oil to a power station is about 40% of the total cost of the final power, so doubling the cost of oil puts a 40% premium of the price of power. However if the price of uranium were to double it would not have nearly as much of an effect on the final cost of power from a nuclear plant. If the price of uranium were to double, the power from a nuclear power station would only increase by 5%. As the cost of uranium to a power plant is only 5% of the total price of the power produced.

What does this tell us? Well it certainly shows us that the cost of uranium to a power station is pretty insignificant, relative to the final price of power. It also shows us that even at these uranium prices of $75/lb utility companies can easily afford to pay more for uranium, much, much more before the cost of uranium becomes as expensive as oil. In other words, at the moment uranium is relatively cheap, even though it has gone from under $7 to over $75/lb.

So how far can uranium prices go before it can be equal with the price of oil? As oil represents 40% of the cost of power produced by it, and uranium accounts for 5% of the price of its power then uranium prices could increase eight times, as 40 / 5 = 8. So if the cost of uranium goes up to the cost of oil, relative to the price of power produced than it can go up to eight times more than the current spot price.

The uranium price used in these estimations was $72/lb and so that means that we could see uranium prices rising by a multiple of eight from here before it becomes as “expensive” as oil. I know that you all are thinking, what is 8 x $72 and the answer is $576! Uranium prices could go up as high as $576/lb in this bull market before the yellow cake becomes as “expensive” as oil.

One must not forget that this may not even be the limit. These calculations are presuming that uranium prices rise to the current price of oil. There are many that believe, including yours truly, that oil prices are set to go far higher and so uranium prices could also go even higher than the previously calculated figure. The main point of this hypothesis is that uranium is a tiny cost in the running of a nuclear power plant and therefore the operating companies can afford to pay a lot more than current prices, without even breaking a sweat.

But it gets better...

Closing down a nuclear power plant prematurely and decommissioning it is extremely expensive often running into hundreds of millions of dollars. The way that nuclear power stations usually work is that they make payments into a trust fund every year that they operate. The planning behind this is that at the end of the power station's “life” for example thirty years, the company will have enough money in the trust fund to be able to shut down the power plant. Therefore they will not want to shut down the plant simply because of slightly higher uranium prices and face a nine-figure bill to shut down the plant. Also they may not be actually able to close the plant, as the cost is so huge, and they have made commitments to the utilities, so they will be forced to purchase uranium at higher prices to stay in operation.

In conclusion, $576/lb is a surprisingly realistic target for the uranium price if it is going to the same price as oil, relative to the price of power produced and it will be very difficult for the nuclear power stations to simply stop buying uranium. However the main question on most of our minds is how can we profit from this uranium boom? One cannot simply buy uranium at our local shop and so we think the best way to benefit financially from this bull market is to invest in uranium stocks. We would advise people to think carefully before investing, do not simply buy a stock that has uranium in its name and a patch of land. Consider small to mid-cap companies that have proven reserves and that are producing uranium, this is the best way to guarantee that you profit from rising uranium prices.

Such stocks are documented on www.uranium-stocks.net. The newsletter and portfolio are completely free of charge so you have nothing to lose and everything to gain...


10 February 2007


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Reader Comments (6)

Two quibles, one small the other could be large, but can not be quantified now.
The small one is as follows: To sell power at the same price anuclear plant can not pay the oil (or coal, or gas) equvalent price for it uranium fuel, because it still has to pay the capital cost which is higher ( than for a conventional plant ).
This is probably significant and will eventually put a drag on the uranium price, provided that economics and not desperation rules.
The larger one has to do with the probability of an accident, which grows with the number of plans and their age. Another Chernobyl, heavens forbid, would certainly have an effect and it would not be positive.

April 2, 2007 | Unregistered CommenterG. Reinis

The proliferation of nuclear-plants will be cause for concern as it evokes the fear of a dualistic ambition (if any) of any particular nation(s) to access both green energy power for peaceful purposes as well as to develop the ability for nuclear armament - which is what all the present quibbling between Iran and the rest of the world is all about. The dismantling of "detente" between the former USSR and USA could potentially be replaced by a far greater nightmare when this power-balance gets spread out across the globe amongst more players. I believe this factor more than anything else could determine the future of uranium as a source of fuel to replace fossil-fuels. Building safeguards would be challenging leadership for the leaders of this new millenium. There is as yet no clarity on this note at this time amongst world leaders. This in my opinion could be the ugly risk which has not entered into the calculations at this stage of the game.

April 4, 2007 | Unregistered CommenterJohn Tan

Sean Brodderick in "Money and Markets" sent an email this morning suggesting uranium at $1,000 is not as crazy as it seems....

I see 3 current major forces moving uranium:

(1) Increasing need for electricity and/or saving oil/gas.
(2) Coal fired plant produce massive emissions of CO2 and other waste products. Matter of fact there is more radioactivity next a coal burning plant than a nuclear power plant.
(3) Global warming alternative - side-effect of #2 above.

In addition a future and MUCH BIGGER push in the uranium price will be Peak Oil and Peak Natural Gas. Imagine rolling electricity brownouts and blackouts on a daily basis. No end in sight (not enough oil or NG). To add insult to injury, you see a HUGE fuel surcharge for the oil/gas. The call for more nuclear power plants in the US as well as everywhere else on top of those currently planned will be enormous - it will be necessary to continue living like we have been used to doing.

My opinion: we will see $1,000 uranium in 5 to 7 years.

April 4, 2007 | Unregistered CommenterDenis Saloman

Price of Uranium will be set by demand and supply not by any oil equivalent cost of electricity.

Demand for Uranium is being increased by high costs of alternative generators of electricity - coal, gas, oil and greens

Most electricity is generated by coal and gas (the share of oil is under 15%). Green alternatives (wind, solar) are the fastest growing (albeit from a low base)

But more importantly demand is being driven by a secular change in opinion about the longterm viability of coal and gas as a source of power (this change has taken place in Europe, China, India and countries like Iran - which understand clearly that they can not afford to be dependent on fossils over the next 30 years. We expect the number of plants to go from about 450 odd today to over 600 odd by 2015 (more if the middle east can start going nuclear this decade, rather than delay due to western fears - look at the increase in oil consumption within OPEC countries over the past 10 years)

Supply is also being driven up by price.

Of course long term supply will be driven by the marginal cost of mining the last tonne of yellow cake. The current pricing is well above marginal cost, so production will increase.

However, in the short term constraints on
i) Timing. It takes +3 years to reactivate a closed mine, +4 years to develop an already discovered deposit and +7 years to discover and bring on stream a new deposit.

ii) Personnel. Finding good geologists and other uranium experts is near impossible.

I see prices continuing to climb over the next 3 years (perhaps averaging 20 to 25% per year) and peaking at about $150 (about the same level as the last peak (inflation adjusted). Maybe even $200. As for $500 to $1,000, I wouldn't hold my breath.

February 17, 2008 | Unregistered CommenterAfamiii

I discovered raw meterial field of uranium some where in north
east India, so we want to excavate and establishing processing
unit for uranium stock.

what is the best way for us to proceed for preparation of the project under Uranium stock?

September 13, 2008 | Unregistered CommenterLunkhopao Haokip

I read (wikipedia) that the Japanese have experimented with extraction of uranium from seawater using special fibres. They found that they could extract at an equivalent cost (yellow-cake) of $250 - $300 per Kg. As the source (seawater) is to all intents unlimited, I would suggest that this is the upper limit of the price of uranium.

July 8, 2009 | Unregistered CommenterDave Kidd

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