Commodities Class: Uranium
Day two and the topic is U-92. Uranium, that is.
Since it's the last day of 2010, I think it is good idea to bring up this commodity which almost certainly has an active future ahead of it.
Much like yesterday's subject, Uranium is directly affected not only by the usual market factors, but of a movement which is as much ideological, as it is political or economic.
Topic #2
Uranium
For a great argument on why Uranium will blow up (pun intended) in coming years, have a look here.
In fact, Uranium looks like such a sound long term play I am more interested in hearing from the bears than the bulls on this subject.
Do any of you guys have a gripe with Uranium as a good bet in coming years?
Tempting as it is to jump into the fray and start beating my Bible on the subject, there are always issues.
The two biggest problems I see are regulation and politics...wait did I say, two?
1) Nuclear reactors do seem to be an unavoidable as far as increased construction. That having been said, regulation can make build out costs so difficult that the growth which demand would seem to necessitate may not occur quickly enough for investors liking.
2) Yellowcake. When you consider the amount of potential implications, the list quickly grows from blog post to textbook...
So, there's a quick few words from me. Would love to hear some chimes on the subject. Who's long? Who's short? Who's wishing for their own warhead to nuke a co-worker with?
Oh yeah, get drunk and fight somebody tonight guys.
Blame it on Midas, I made you do it.
For the record, Au, a lot of folks I know call it U-235 or U-238 rather than U-92. When we're dealing with isotopes, you know the atomic number if you know the element- you don't know the mass. Natural U is 99.3% U-238, 0.7% U-235. The U-235 is the fissile stuff that generates the heat in a nuclear reaction. To burn it in most western reactors, we need to "enrich" the U to 97% U-235, 3% U-238. The enrichment process is very energy intensive. In the US, we use gaseous diffusion which consumes 5% of the energy that will be produced from the fuel in the reactor.
Some Canadian reactors (called CANDUs) can also burn natural Uranium with 0.7% U-235 because they use a heavy water moderator. And in France, they have a reactor which converts U-238 into Pu-239 and they burn that in reactors. The cool thing with France's process is that the waste becomes perfectly safe, radiologically speaking, after 500 years. (That is another discussion.)
I like U-235 because it's incredibly inelastic. Fuel makes up a very tiny fraction of the operating costs- let alone generation costs- of a nuclear reactor. And if we move towards PHEVs or even CNG cars, we'll see nukes' competition- natural gas plants- get more expensive. Of course, all of this is assuming we don't see regulation of CO2.
China is also building a number of new nuclear plants as well.
Very informative, I am almost frightened to ask why a sales and trading person knows so much about uranium enrichment, but I am going to assume it was for investment purposes. What do you guys think about coal? I say the United States should start developing their coal production and exporting capabilities before some form of renewable energy becomes economically feasible. I know coal isn't good for the environment, but the United States literally has trillions of dollars worth of it. Coal alone has the potential to bring the United States out of the current economic situation we find ourselves in. Screw the environment.
Coal is a very carbon-intensive way of generating energy. We need to reduce consumption of it. Generally, nuclear is also a lot cheaper than coal.
Lol. I stand corrected. Some excellent points. Specifically being inelastic. Simple point, but drastically overlooked.
Most of that was interesting but the most important part of this is the last sentence. With China's economy exploding (and hopefully not imploding in the near future) we'll see a larger demand for uranium. I think America is still pretty young in the whole Nuclear Age (albeit, nuclear energy is young in and of itself) and that the more we realize the potential energy that can be harnessed from uranium, the more we'll also realize how rare of a commodity this is.
Amazing post my friend. Uranium is a great play considering how old our nations nuclear energy is. Plants are going to have to be upgraded or new ones will have to come online.
Uranium and Lithium, go long
And Palladium
Nobody in the US is building nuclear plants right now. Natural gas prices are pretty darned low right now and construction costs are high. Not to mention the regulatory issues of building a nuclear plant. If anything, the fact that the US's nukes are old is bearish for Uranium.
But the good news is that Russia has stopped decommissioning their warheads and selling the U-235. And China and India are building large numbers of nuclear plants.
Wrong. Your boy Obama was there for the ground breaking ceremony for a n power plant last year. I'm on my phone, I'll find the article when i get home
Thanks bro, Happy New Year if I haven't wished you one, already. Palladium is an excellent call, btw. I'm hoarding it as we speak, in my dreams.
How are you playing it? Buying U or NLR?
Need to do more research on thorium, than uranium will be less important
^^^ Give that 50 years or so to fully develop.
Could do a Manhattan project type research or Apollo 11 type
Ok, ok. There are 20 power plants under application. I think they are actually building only one or two. There are currently ~100 reactors in the US, so that is a very small number.
Most of the applications are largely for the optionality- IE the Victoria County Project. The construction license takes three years to get from the NRC. The operating license used to take another five or six years (generally of Greenpeace activists pointing at random numbers and asking how they got there and what happens if the constant for pi changes) until they introduced a streamlined process.
Only a few plants are getting built- I think the TVA has some plans to reopen a few shuttered reactors. I think all of the others (if any) started construction when natural gas prices were two or three times higher than they are today. The rest are simply there for optionality. Not because it's profitable to build them now- but because it might be profitable in 10-20 years.
Illini, do you know what "clean-coal energy" is or is that just a gimmick? (CSX claims to use clean-coal)
Correct me if I'm wrong, but the actual amount of uranium that is used in nuclear reactors is quite small and doesn't provide a drastic boost to demand.
Also,
USA currently has 104 operating reactors, 1 under construction, 11 planned, and 19 proposed.
China has 11 operating, 20 under construction, 37 planned, and 120 proposed.
Russia has 31 Operating, 9 Under Construction, 8 Planned, and 37 proposed.
South Korea has 20 Operating, 6 Under Construction, 6 Planned, and 0 Proposed.
To break this down: Operating: Connected to Grid
Under Construction: Concrete poured or refurbishment underway
Planned: Approvals and funding are in place
Proposed: clear intention of proposal but without firm commitment.
The construction/operating license phase is probably the most time-consuming regulatory hurdle prior to construction.
The problem with U is that higher prices are already factored into most stocks. The time to get in really was two years ago. But there's still other opportunities out there. I don't want to give too much away, but has anyone considered the fact that natural gas is $4/million BTUs in the US but $7/million BTUs in Asia? Think about the supply chain for natural gas and how that might create advantages for certain industries in the US and/or potential arbitrage opportunities if you can somehow ship natural gas across the Pacific or Atlantic.
I'll offer a little different vantage point on the Uranium market - not from the investing side, but from the financing side.
I would say that fundamentally, for the reasons stated above, it makes sense to go long Uranium. Lots of potential there. But there is a major, major roadblock - banks don't want to finance the uranium trade. The reputational risk involved, not to mention regulatory, is IMMENSE.
I had a client that trades nickel call me up in summer asking if we'd lend against Uranium. "hmmmm..... don't think so - stick to nickel" was my response. And even though the client had a very profitable opportunity and could have made a ton of dough, I didn't want to touch it. The deal was dead.
What am I going to do with uranium collateral? How the hell do I liquidate a uranium book? Do I even want to think about what would happen if, for some reason, the Uranium got into the wrong hands and the feds came knocking on my bank's door? No thanks. Not worth it, from a senior lender's perspective. Give me equity returns and I'll finance it - but not for sr. creditor returns!
The fact is that we've never seen an above-ground breach of containment in US history. TMI was largely shaping up to be a below-ground breach which would have had a similar environmental impact to the TVA coal ash slurry breach.
TMI exposed Metropolitan Edison as a company that sweeps problems under the rug and downplays risks to the point of practically lying to the public. Many people never forgave them. But I don't think the banks that financed the plant suffered any reputational damage.
Most banks have a lot of red tape around doing business with anyone who does business that require an NRC license. Not to mention an NRC license.At the risk of suggesting you point folks to your competitors, I have a feeling the trading operations at some of the utilities would be happy to take delivery or handle storage. They've obviously got a comparative advantage when it comes to this kinda stuff- I'm actually kinda surprised utilities aren't building out their trading desks.
You can't trade Uranium...
However, I'm pretty sure trading significant quantities of Uranium- particularly yellowcake- probably requires licensing and lots of regulation. It certainly does require certain precautions. I think a sensible approach probably involves having everyone handling the stuff wear dosimeters and certain steps to avoid any kind of dust floating around, landing on people, or going into their lungs. That said, my nuclear engineering prof brought a plastic bag of yellowcake into class, it spilled on someone's lap, and he told the person to carefully brush it off, wash his hands, and probably throw away the clothing as soon as he got home.
Most of the stuff is relatively safe to handle before it goes into the reactor. You wouldn't want to carry it around in your pocket all day long, but leaving that bag of yellowcake in your basement for 30 years (or heck, in your desk at the nuclear engineering lab if you were our prof) probably wouldn't be harmful as long as you didn't breathe it in or stay on your body for months and months.
I think some of the increase in market cap for some of the Uranium miners is a little premature. I do not think it reflects actual realization of value. Why:
The value of uranium right now is just around the price of production.. I'm not certain on specifics for pricing for the miners(hedging, LT contracts, etc) though....
One thing about the OP I have contention with is that the US is not going to close down any power plants due to increased regulation, they will be closed due to age. Taking this in mind/ keeping US uranium demand constant for 10-15yrs and building in increased demand for China and those mentioned in Brooksbrotha's post shows a good demand curve for uranium in the future. I don't think therefore the US and regulations at home is going to have such a large increase as the OP assumed. I think regulation in developing countries will be a larger deal, and really only if China has a reactor meltdown and it fires up some big party members or something along those lines.
If I wasn't a poor student I'd be long some exploratory Uranium miners.
Illini... I'm talking physical. I finance physicals merchants, taking a sr lien against their inventory and A/Rs. So if something blows up, my collateral would be radioactive, impossible to store (not to mention hedge), and difficult to sell. Thanks, but no thanks. I'll stick with softs and non-radioactive energy! I'm just saying banks' unwillingness to finance a growing uranium trade is going to be a big growth impediment, unless banks can get comfortable with it, i.e the market deepens significantly and there's a little more price transparency.
Brooks... I'm not saying there's a futures market for it- there isn't- and you are right the average joe cant take a uranium position. That said, there definitely is an OTC global uranium trade, provided merchants have the right licenses (again hurdles here too)
Right, I've actually read about the OTC market and the requirements to invest. But for the sake of this thread, I think we're talking about your average trader of the domestic markets. Main two ways of investing are stocks and ETFs.
Just read the part about selling it to utils - good point. But WTF do I do with it while I have title, without a utility tryig go rape me on price because they know I dont want the shit and have nowhere else to turn... Banks can't collude- the trade can...
As far as my competitors, there are few that specialize in trade finance, and even then they're all euro banks- SG, RBI, Rabo, etc. I can't imagine they'd want to finance Uranium either... Maybe I'm not being commercial enough here, but it's too soon... So until the market ripens a bit, better them than me!
Brooks: banks' willingness to finance the global, physical U trade is a huge factor in absolute growth potential for uranium, I.e it's attractiveness as an investment for the average Joe. I'm not saying it won't be a good play in a decade, but for now I think capital is best invested elsewhere.
The shit is really expensive- and really capital intensive. Banks are a required player here. Don't overlook that!
Bamlnite: either or. URA focuses on just mining while NLR covers the whole sector.
AssociateGuerilla: Correct me if I'm wrong, but didn't the funding for the Nuclear Power Reactors being built in Watts, Tennessee come 100% from tax payers?
Uranium Participation Corp. (Public, TSE:U) Uranium Participation Corporation (Uranium Corp) is an investment fund. Uranium Corp was created to invest in, hold and sell uranium oxide in concentrates (U3O8) and uranium hexafluoride (UF6) (collectively uranium)
Good post,, there's not much to add... I'm pretty sure that the uranium used for nuclear power plants is the U308 isotope.
Really nice to see U308 sit at $62.50. It was in the low 40's back in May... Quite a nice run. Much like REE's many companies are now acquiring Uranium properties, and those who had some, are starting exploration again seeing how high prices are. Such prices will be good for future financing aswell!
Just over a year ago, one of the companies I own shares in was sitting at $0.05 and could barely close a $500,000 flow-through private placement. Now they are sitting at $0.12, with options and warrants in-the-money, and companies desperately want a piece of the pie (according to IR). A company which I though was dead a year ago is more enthusiastic than ever about future prospects. They think it's going to be a great 2011.
I think that's how most uranium companies feel...
Goodluck
[/quote] Be careful with the junior miners. A lot of the time, their stock winds up being worthless. Is the firm at least profitable and actually producing U? I feel a lot more comfortable investing in profitable companies that are producing.[/quote]
I much prefer juniors. Yes you are right, many become worthless at some point or another, but also, some are bought-out, or at least give you decent R.O.I. You just have to know the risks before entering the trade, define your exit points and don't let emotions take over. The only thing I dislike about juniors is that it is very dangerous to place stop-losses, since MM's often see them and just shake the tree, so to speak.
Anyways, No pain, no gain :)
I think what a lot of folks forget is that these nuclear plants are owned by huge conglomerates with very strong balance sheets and generally their own trading operations. I really think a bank is going to be outclassed unless they take over a nuclear utility or get into one of the businesses like mining or enrichment.
What comforts me a little about the U market is that it's hard to speculate in it. And to get a comparative advantage, you need to get billions and billions worth of equity.
Brooks I am talking about financing the physical trade of the raw uranium cake - the shit the reactors need to work - not the financing of reactors or any fixed asset.
Illini, the "last steps" before end user in almost every raw material - take grains for instance- are dominated by conglomerates with big balance sheets and big trading ops. But in a deep market, there is still a need for the merchant/middleman to import from source and arrange the logistics of getting it around the country once it's at port, out of the wellhead, what have you. I would invite you to name a single exchange-traded commodity that does not at some point involve a physical trader/middleman between source and end user. there may be a few one off exceptions
URZ is up 9% today. Anyone know if it is typically this volatile?
ya 10% isn't irregular for URZ, i have been following it since it was at $1 during the summer
Hedge funds were driving up the price of Uranium a while back. You cannot own the physical so you own certificates which give you the right to the physical. Nuclear facilities have to replace their fuel pretty regularly. China is also going on a huge nuclear expansion.
Sorry for jumping in late to this thread but hasn't Goldman started to trade uranium?
http://www.nypost.com/p/news/business/bank_commodities_business_to_deli…
I saw it during the summer but I don't know what has happened since.
Goldman trades souls too. We just don't count Goldman in for this. They probably have a special OTC license.
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