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