How The Fukushima Disaster Impacts The Uranium Industry

Posted on September 3rd, 2011 by
   

Amir Adnani, CEO of Uranium Energy Corp, talks about any current fallout from the Fukushima Nuclear Power disaster and how the uranium industry is handling this challenging time.

Full Transcript:

 

Ben Lack:  The nuclear disaster in Japan has really put a damper on the entire nuclear industry and uranium companies have had a hard time overcoming the concerns that have come out of the disaster.  It’s now been a little while since the disaster has happened and I’m curious to get your thoughts on what the industry looks like today?
Amir Adnani:  The nuclear industry’s near-term growth remains intact as there were 62 reactors under construction before Fukushima and there are still the same 62 reactors under construction worldwide.  Of the 62 reactors under construction, the majority of them by a far margin are in emerging economies.  They in countries like China, South Korea, India, Russia and so what we’re noticing is that the economies of the world that are growing most rapidly are the ones that are also most dependent on needing to develop their energy mix. That energy mix definitely includes nuclear power.  I think what we’ve seen post Fukushima is that nuclear still remains the only option in the energy mix, which has the characteristics of being reliable, low-cost and emission-free and a source of energy that provides power on a large-scale basis.  There is just no credible alternative to it.Having said all of that, of course, the events in Japan were truly a human tragedy, it was not a failure of nuclear technology as you know.  It was really issues related to diesel backup power generators.  When it was all said and done, I think it’s fair to say that the earthquake and Tsunami were the real cause of the human tragedy.  Nuclear power didn’t kill thousands of people.  The human tragedy was caused by an unprecedented national disaster.  Having said that, I think the industry has correctly responded to the security calls that have followed Fukushima.  There has been industry and worldwide review of backup power policies and backup power procedures and review of safety procedures at nuclear reactors.  In the US, there were a number of studies done to review the safety of US nuclear reactors and definitely this issue of safety has been front and center on the industries mind and the industry has been respondent to that.  I think the lessons learned at Fukushima will definitely be incorporated into ways that reactors and backup power and various other safety issues will be addressed, now and in the future.  This is all a good thing.What we have today is I think definitely an industry that has faced a very testing time as a result of what happened in Japan in Fukushima, but I still believe that growth is nuclear’s future, and I think that’s evidenced by, again, the number of reactors that remain under construction and greater plans above and beyond what’s under construction, in terms of policies and plans both in the US and China and South Korea, plans for wanting to build more reactors above and beyond the 62 that are under construction.
Ben Lack:  Uranium is a big component to the nuclear industry.  What parts of the world have the best access to uranium and has the access to the Uranium changed because of Fukushima?
Amir Adnani:  The Fukushima event has not had a direct impact on the exploration or mining for uranium directly.  It’s had an impact indirectly in that the share price of publically listed uranium exploration and producers has been affected negatively.  To quantify that, the average uranium stock is down to the tune of 40% post Fukushima.  It’s also had an impact on the spot price of uranium, which is down to about $50 a pound and right before Fukushima I believe it was around $65 a pound.  The long-term price of uranium is not affected a much.  It’s down to $68 per pound from a pre-Fukushima level of $70-73-per-pound, but as a result of Fukushima there has not been news of uranium mines that were operating shutting down or having that kind of correlation.  However, basically the lifelong of junior companies that are dependent on the capital markets to raise money to explore for new deposits of uranium, that access has now become a lot more limited and so raising money to develop and advance uranium projects is a far more difficult thing to do now.  I think this only creates an environment where the fact that we need to grow uranium supplies worldwide to meet current demand and growing demand.  This whole dynamic is going to be challenged now, and I don’t think uranium supplies are going to be growing at an adequate enough rate and this may lead to sharp increases in uranium prices. Having said all of that, uranium is an abundant mineral and one of the most abundant minerals in the earth’s crust and there should be in the long run, with higher uranium prices, enough uranium mines developed and mined worldwide to meet all of the nuclear industries needs.  I don’t think we have an issue here with let say peak uranium, but I think we do have a situation short-term where the stage is set for a supply crunch for uranium.We see big opportunities in the US and South America because the US has significant uranium resources that are not adequately mined today.  There is very little US production and this has to change because the US utilities are the world’s biggest uranium consumers.  South America geologically is very rich from a mineral point of view, but yet it’s one of the least explored continents on earth for uranium, so we see big opportunity for uranium exploration and development in the US and South America.
Ben Lack:  In the US, are there certain states that have higher exploration than others?
Amir Adnani:  One of the best states for uranium exploration and mining has been Texas and this is evidenced by the fact that in the last five or six years, the newest uranium mines to start production in the US have come from south Texas.  Are company started production eight months ago and prior to us, there was Mestena Uranium that also started production.  There has been uninterrupted uranium exploration and mining in south Texas for over 30 years.  There is a very pro-energy and pro-business attitude in the state. So, overall you have the right climate so to speak.  The southwestern US states have been traditionally and historically active for uranium mining, so the states of Wyoming, Colorado, Utah, New Mexico, Arizona and of course Texas are all states that have decades of uranium exploration and mining.Historically, the US was the world’s biggest uranium producer in the late 70s, producing over 40 million pounds of uranium annually.  Today, the US is not a major producer in the world and total US domestic production of uranium is only 4 million pounds per year, 1/10 of what it was at its peak 30 years ago.  This dynamic is something that I believe is going to change.  I think we’re going to see a turnaround and basically a resurrection of the domestic uranium exploration and mining industry, driven by higher uranium prices and fundamental demand, particularly from US utilities that are very heavily dependent right now on foreign secondary resources of uranium, and that basically would be the program with the Russian government dating back again to the Cold War where for a very long time, now, we’ve depended on uranium that has been derived from dismantled Russian warheads.  That has become a secondary supply source for a long time now and that deal with the Russians is expiring in 2013. We are very close to the expiry of a major source of secondary supply.  With that secondary supply going out of the equation, we go back to needing to mine more uranium and again the group that is most exposed to uranium shortages would be US utilities.  Hence, the need for substantial improvements and increases in domestic mining of uranium in the US.
Ben Lack:  How do you as CEO of Uranium Energy Corp position the company to take advantage of the existing short-term market conditions?
Amir Adnani:  Well, we position the company from the very beginning to focus on low-cost production.   When I started the company six years ago, of course, I wasn’t necessarily thinking or planning for an event like Fukushima, but in the mining business and in the uranium business, it always is a good positioning to be on the lowest end of the cost curve for production.  In the uranium business, the lowest cost way of mining uranium tends to be employing a method of uranium mining called Institute Recovery or ISR.  It’s basically solution mining.  This is an alternative to hard rock mining, conventional mining methods like open pit and underground mining.  By positioning the company from the very beginning to acquire and develop projects that would be amenable to In-situ Recovery, we were positioned in a way where when we became a producer, we benefited from having very low-cost production.  This low-cost production means that we have a viable business.  It means that even in a challenging time like the post Fukushima environment that we’re in, we’re able to survive and do well and still have a very viable business and take advantage of weaker players or take advantage of opportunities that present themselves because this is a challenging environment for the uranium and nuclear sector.  In-situ Recovery is one of the lowest cost ways and most environmentally friendly ways of mining uranium.  Globally, 35% of global uranium production is by way of the In-situ Recovery mining method today.  In south Texas, where our main operation is, the geologic setting is favourable for employing this method of mining.  In fact, most of the uranium mines that have historically been developed in south Texas over three decades have been In-situ Recovery operations.  In fact, south Texas is the birthplace of this method of mining.  When we started production in late 2010 and now to August of 2011, we have almost eight months of production under our belt.  This is initial startup production.  It’s with this method of mining.  So far we have had two quarters of production results and the most recent quarter we reported was for the period ending April 30th. And up to April 30th, our production so far has come in at about $15-per-pound based on cash operating expenses.  At $15-per- pound operating expense, we are definitely a very viable business and very much on the low-end of the cost curve for mining uranium.  The spot uranium price right now is $50-per-pound and our cash operating expense through to April 30th has been $15-per-pound.  When you look at that right there, you can see that our positioning for this company to focus on the In-situ Recovery method to focus on low-cost production in Texas where this method of mining has a history and viability because of the geologic nature of the uranium deposits there.  This gives us a competitive advantage in a challenging time like right now.  In better uranium environment with higher uranium prices, of course we will have greater margins, but even if there is potentially lower uranium prices ahead of us, we still have cushion there to be able to eventually make money from the production that we have.  That’s the key thing to highlight in terms of what makes our story and our company unique.
Ben Lack:  Amir, how did you get into the industry?  Why does the industry interest you?
Amir Adnani:  I’m an entrepreneur by background and I have experience in the junior resource sector and the mining sector.  What I think is very attractive about the uranium business is that uranium at the end of the day is very important and strategic metal and that it is used to generate low-cost and emission-free electricity.  This is a power metal.  It’s an energy metal.  I can’t think of any other important metal that’s used for significant power generation where only 7 or 8 companies worldwide mine all of the uranium or all of that metal.  That’s what’s so attractive about the uranium business is that there are scarcity of producers.  There are only a handful of producers in North America that mine uranium.  There are not enough players in this industry and there is, of course, not enough uranium being mined.  The supply and balance in terms of the uranium production worldwide versus current demand; there is a big supply imbalance. That supply imbalance has been in place for almost 25 years.  I can’t think of too many other metals that have such an important role to play in the energy world and have been in imbalance for 25 years in terms of the supply imbalance versus demand. Only a handful of players produce all of that commodity worldwide.There is significant room for growth in the uranium business and that’s what attracts me to it because I think there’s a long-term opportunity to build a uranium producer that could be part of the growing universe of uranium exploration and mining company that is needed to support the growing nuclear business.  The nuclear business, make no doubt about it, is going to be a growing business.  I think having a healthy uranium industry that provides the fuel needed for the growth of the nuclear industry is a must and that’s why we’re in this and, as well, we’re excited about it.  It hasn’t been easy.  The last six years we’ve lived through ups and downs in volatile utilities both with the uranium market, not to mention the financial crisis of 2008 and, of course, now the recent challenges as a result of what happened in Japan in Fukushima.  This, in a way, is actually great because I think it becomes great in the sense that it’s a great test to make sure that you have a very viable business model.  I think the test is something that our company has passed so far, and I think if you can survive these ups and downs and these challenges, it is an important way of demonstrating that you have a business that makes sense and it can grow and prosper.
Ben Lack:  Are there certain policies that you think need to be implemented either on a State or Federal level that will help with the advancement and the growth of not only the uranium industry, but nuclear power as whole.
Amir Adnani: I’m not going to single out any policies. Keep in mind that in general there isn’t a large uranium mining industry domestically in the US.  This industry is not really well understood by the market.  It’s not really understood by policy-makers, because as such a small industry, it really has not had a loud enough voice to be able to educate stakeholders and educate policy-makers about what its needs are to create a mutually beneficial two-way street with, basically in terms of being an economic engine for creating jobs, in terms of being a healthy and basically the right custodian of the environment and also working to meet our energy needs.   The reality is uranium and the uranium exploration and mining industries can do all of those things. A healthy uranium exploration and mining industry makes us energy independent.  It creates high-paying jobs.  Handled correctly, issues around stakeholder’s concerns about environmental safety, environmental issues around uranium mining that people might have can all be addressed.  The reality is we perhaps have not paid enough careful attention to the domestic uranium mining industry because we’ve relied so heavily, ever since the end of the Cold War, on imported uranium from dismantled Russian warheads.  Those days are coming to an end and they are coming to an end soon.  We do have to start to pay attention to what it means to have a healthy and growing uranium mining industry domestically.  I think, as a result of that, we’ll have to pay more attention to what policies need to be developed and what needs to be done to allow this industry to grow in a mutually beneficial way with stakeholders and with the utilities and with the policymakers.  The reality is, today, it takes a very long time to license uranium projects.  That’s the biggest bottleneck in developing a healthy uranium mining industry.  The regulatory environment is rusty.  There aren’t enough regulators to understand or to have a history with uranium mining because this sector has been dead for so long.  Equally, there aren’t enough experienced geologists and engineers in the uranium mining industry domestically. So, the human resource base needs to be replenished.  Again, our understanding of this sector and its nuances has to be improved.  I think this is something that is going to happen gradually.  In places like Texas, we have the benefit that there has been uranium mining taking place there, as I mentioned earlier, uninterrupted uranium exploration and mining for three decades.  It’s been one state along with Wyoming, where even during the downturn of uranium prices, uranium mining activity somehow survived, although on a small scale.  That means even on a small scale, there is an understanding and there is a regulatory environment.  In Texas, again, because you have a state that is very pro-business, very pro-energy, and has a very long history with energy, uranium, oil, gas,  that it’s been a good place to work.  Texas is an agreement state and what that means is that the state basically has been given the right to permit for uranium at the state level, so in other states we would have to permit with the state and the US Nuclear Regulatory Commission.  In Texas, we don’t permit with the US Nuclear Regulatory Commission.  Everything is done at the state level with the Texas Commission on Environmental Quality.  None of this means that in Texas it’s a walk through the park.  It’s not.  It still takes a long time to get permits and the TCEQ acts in accordance with regulations and polices set out by the NRC and so there are those continuities.  Again, this is an industry that’s very small today and it’s going to grow.  As it grows, I think there will be more to talk about in terms of policies that are mutually beneficial, but I think that at the end of the day this is an industry that, as I mentioned, can be a very important industry for making the US energy independent and very important for job creation and just a very strategic industry moving forward.


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One Person has left comments on this post



» MICAH WILLIAMS said: { Jun 7, 2012 - 10:06:15 }

Interesting points you have mentioned, I am a management student working on a technology startup for the mining industry. I read about Stephen Dattels . He is a Canadian mining professional along with discerning investor. I got inspired with him. I studied about him & found he used innovative ideas & techniques for his mining business. I learned so many things from him.



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