Cameco Corp (CCO.TO) + Uranium Surging Higher: Sustainable or Temporary?

Cameco Corp (TSE:CCO) (NYSE:CCJ), Canada’s largest producer supplying ~18 percent of the world’s annual consumption, rose from a low of $9.95 on October 31st to today’s price above $16.36 per share. More importantly, the rate of price acceleration is increasing.  During the last quarter of 2016, the price of uranium, on the other hand, has come off of its November low of US$17.80, and rebounded to US$24.00 per pound – an increase of 34 percent.

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What’s going on? Is this yet more evidence of the end of the great bear market of 2012 – 2016 in metals?

Maybe.

But a closer examination of the key fundamentals pertinent to the future price of uranium – its supply and demand – suggest caution.

On the one hand, the argument for more nuclear power sooner is driven by the persistent and intensifying crisis evolving as a result of global warming. While unbelievably we still entertain a segment of society who questions its very existence, most of us are more fully engaged with the rate at which it is increasing, and the implications of that for the future of our children.

Listen to an audio podcast interview with Leigh Curyer, CEO of NeXGen Energy Ltd, a Canadian uranium explorer:

 

On the other hand, we are in the midst of a technological revolution that is making the pace at which efficiency is brought to bear on innovation, and vice versa, suggest that nuclear power might not be the best option for the evolution of energy. And if it is the best option, it won’t be your uncle’s Light Water Reactor

The deciding factor, as in all human endeavour, will be economics. And the economics for nuclear power have not improved at the same rate at which the economics for other renewable sources such as wind and solar have.

See how Cameco Corp has deployed technology to mine uranium efficiently while improving the safety parameters for its employees.”

Particularly with advances in energy storage, both wind and solar have become much more viable back when we used to hear that wind could never amount to more than x, and solar no more than y of the total baseload power required, because of the limitations of climate and geography, now largely resolved with technology.

According to January 2017 data provided by the World Nuclear Association:

  • There are over 440 commercial nuclear power reactors operable in 31 countries, with over 390,000 MWe of total capacity. About 60 more reactors are under construction.
  • They provide over 11% of the world’s electricity as continuous, reliable base-load power, without carbon dioxide emissions.
  • 55 countries operate a total of about 245 research reactors, and a further 180 nuclear reactors power some 140 ships and submarines.

Nuclear Power Economics

story at Forbes.com outlines aspects of the investment thesis for nuclear power generation relative to coal.

“The Columbia Generating Station produces uses 5% of 20 tons of fuel each year to generate 9.6 billion kWhs of electricity. Compare this to Washington States’ only coal plant which uses 5 million tons of fuel to produce the same amount of electricity, not to mention the 10 million tons of CO2 it produces that enters the atmosphere.”

Comparing nuclear power generation to coal powered is an excellent choice for dramatically highlighting selected aspects of both. But what happens to that remaining 95% or the Columbia Generating Station’s 20 tons of fuel?

The answer is it gets stored as high level nuclear waste until a longer term solution is found.

A Nuclear waste storage pond in Sheffield, U.K
Storage pond for used fuel at the Thermal Oxide Reprocessing Plant at the UK’s Sellafield site
(Sellafield Ltd)

According to World Nuclear Association, “There is about 240,000 tonnes of used fuel in storage, much of it at reactor sites. About 90% of this is in storage ponds (smaller versions of that illustrated above), the balance in dry storage. Much of the world’s used fuel is stored thus, and some of it has been there for decades. Annual arisings of used fuel are about 7,000 tonnes (6,000 t from LWRs), and up to 3,000 tonnes of this are intended for reprocessing. Final disposal is not urgent in any logistical sense.”

Obviously, stored nuclear waste represents a significant expense in nuclear power economics, but therein also lies opportunity. With 95 per cent of the energy in all of the stored High Level Nuclear Waste, there is a huge uranium resource available to any technology that could reuse that waste by capturing the stored energy.

Integrated Molten Salt Reactors

Integrated Molten Salt Reactors (IMSRs) are the next generation of nuclear technology that proposes to capture exactly that opportunity. These modular reactors are meltdown-proof by design, and also are able to use the stored High Level Nuclear Waste as fuel.

Transatomic Power Corporation based in Cambridge, MA, is a company at the leading edge of IMSR development. It was founded by two graduates of the Nuclear Power Engineering program at Massachusetts Institute of Technology. According to the company’ s web site, ” Our reactor consumes nuclear fuel slowly and thoroughly, over the course of decades.

How much less waste?

“Our extremely efficient fuel utilization means that we produce much less waste per year than a light water reactor, reducing the total volume of waste by over 50%,” according to company information.

They provide the scenario where a conventional LWR produces 9.07 tonnes per year of waste whereas the IMSR generates only 4.35 tonnes each year.

The implications for the price of uranium mined as primary supply are obvious. With the new reactors capable of both operating on half the requirement of uranium, and consuming a portion of existing High Level Nuclear Waste as fuel, future reactor buildout will have to increase dramatically to absorb the implied slack in demand inherent in the next generation reactors.

 

 

 

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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