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Dear community, I am the author of the following book which I have posted in its entirety.
I like to research my investments thoroughly, so the following is my thesis that this is a 'when, not if scenario'.
As not many seem to want to buy it on Amazon, I am making it available to read in posts below. Enjoy!
If you click on the below link, I am hoping it will move my ebook up the amazon search ranks so non redditors can see it. Thanks.
https://www.amazon.com/Planet-Uranium-Beginners-Guide-Market-ebook/dp/B07TCHF7T7/ref=cm_cr_arp_d_pdt_img_top?ie=UTF8
Due to reddit post size limits, it is in different posts.
Link to Chapters 1-6
https://www.reddit.com/UraniumSqueeze/comments/le3ubj/planet_uranium_a_beginners_guide_to_the_uranium/
Below are Chapters 7-8
Chapter 7 The guardians of the prices - Contracts, spot, and futures
So the way uranium moves around between sellers (producers) and buyers (users) is typically based on long term contracts. Long terms contracts are most suitable to ensure a steady supply, thereby ensuring a steady supply of electricity which end users tend to prefer.
Along with long term contracts, we have a spot price indicator. So to explain the term ‘spot price indicator’ we need to discuss nuclear fuel brokers. If you have ever bought or sold a property, part of the process involves using a realtor or real estate agent. He or she posts a photo of the property on the property sales website and later people get shown around your house and if things go well, the realtor calls you to say an offer from a prospective buyer has been made, you can either decline or you can make a counteroffer. The estate agent is the middleman and it’s in his interest to find agreement between you, the seller, and the buyer. Once the deal is down, he gets his commission.
The uranium industry also has its ‘real estate agents’ and these are called nuclear fuel brokers. Relative to actual realtors which according to the U.S. National Association of Realtors 2018 Member Report number 1.3 million realtors, there are very, very few nuclear brokers.
Some of the brokers out there are New York Nuclear Corporation (NYNCO), there is Numerco which is headquartered in the UK, there are also Uranium Markets and Evolution Markets. So they go about their daily business of doing deals between uranium buyers and sellers and take their cut as a realtor would. These contract negotiations are private as opposed to other commodities that may trade on an open market. So why do we hear about a spot price indicator?
Well, this is where another cog in the big wheel of uranium comes in, there are uranium market consultants that aggregate or gather data from some of the fuel brokers to come up with a daily or weekly price. For example, if you go to the Cameco website (Cameco is a producer), you will see a link for the ‘uranium price’. Two prices are shown from two of these market consultants. These companies don’t just post prices of uranium, they also, amongst providing other services, do research and compile reports on the industry.
UxC is one of these market consultants and they post a daily uranium price which is what they call the UxC BAP which stands for Broker Average Price. The daily BAP is built from two brokers sending information to UxC on the deals they have done, they are Evolution Markets and Numerco Limited. What is noteworthy here is not all nuclear fuel brokers are participating in this so this is only an indicator of prices.
The other market consultant that posts prices is Tradetech and if you visit their site you will see what they call the ‘Weekly Spot Price Indicator’, which is similar to the UxC price but weekly rather than daily. Both of these information gatherers also post other price information, for example, midterm prices, long term prices, and prices on different products such as UF6, etc.
So in general, deals are done between producers and sellers by negotiation and ultimately a contract with a duration that could run into the years. This highlights that the ‘spot price indicator’ is just that, an indicator, it is not intended to reflect the true price of production or the future price either.
Here is the rub for uranium miners, if they agree on a long term deal at a given price and the spot price indicator goes up during that time, the miners are going to feel that they could have made more profit by not having locked themselves into a long term contract at a lower price. Again the opposite may be true too. If the spot price indicator goes down while they are locked into a long term contract, they can feel pretty smart for locking a seller into a long term contract which may ride out the lower priced times.
They could even stop mining and just buy contracts from other producers, basing the prices on what the spot market indicator price is at, safe in the knowledge that it is at a low price. They could then deliver that product to whoever they made the long term contract with. This would also save the miners using up their own mine supply which is finite.
Cameco is a real-world example of this type of situation. Cameco is a uranium produceminer. According to its website, it operates in Canada and Kazakhstan amongst other places and has licensed capacity to produce 53 million pounds a year. In 2018 they said their delivery commitments were 32 - 33 million pounds, they meet these by three means. The first is taking pounds from their mines, the second comes from long term contracts with others and finally, they can go into the spot market or their own inventory (storage) for the rest. Yes, this example adds extra confusion due to the fact Cameco itself is a long term contract buyer as well as a longer-term contract seller. In 2018 they mined 9 million pounds, bought another 8-9 million through long term contracts which left them needing around 14 million more to cover their commitments.
Note earlier, we said they had licensed capacity to produce 53 million which does not mean that is how much they actually produce, you can see a big gap between producing 9 million and 53 million. It is clearly cheaper for them to buy a product from other producers than to produce it themselves. So are they a producer or just a middle man? It seems the answer is both, in a sense.
Long term contracts typically last between 4-10 years. In the next six years, quite a large proportion of these will expire, and the buyers will be back at the negotiating table looking for more contracts. If you are a producer, you are hoping that you will be able to sell to them and lock in a good customer for some years.
I want to return here to the term ‘spot market’. We said earlier that Cameco buy uranium in the spot market and that is how it is worded on Cameco’s website too. Arguably, there is no such thing as a spot market in the uranium market, and yet we find this term used readily by the producers and in the uranium space, so first, a quick definition. According to Investopedia’s website, a spot market is where commodities (amongst other items) are traded for immediate delivery.
Cameco is a good example to learn from because in the first instance, they deal directly with the sellers (utilities) which means they don't use an independent broker, but as mentioned earlier to meet their commitments they also go to the ‘spot market’. We need to remember that we are talking about purchasing through a broker who then brokers the deal which doesn’t typically include immediate delivery as defined by a true spot market. This approach to the ‘spot market’ may include issuing a ‘request for proposal’ (RFP) with terms around delivery times, source of supply and other conditions. Again this assists us to understand, this is not a spot market in the true sense of the word.
Now seeing as we have dug into pricing in this chapter, it would be useful to consider the futures market, this differs from the ‘spot market’. So to start let’s do a simple definition of a futures market. Again, the website Investopedia defines the futures market as “an auction market in which participants buy and sell commodities and futures contracts for delivery on a specified future date”.
The futures markets allow people to buy and sell risk. Do you want risk or do you want to reduce risk? Who would want risk? The answer is speculators because they can make a good profit from it. Who wants to reduce risk? Well in the uranium market, it is typically the utility company, remember they want to produce electricity and usually companies like that have been around for a long time and are conservative by nature and want to reduce risk.
Some people will travel far and wide with no form of travel insurance. Others won’t leave the front gate of their home without travel insurance. Let’s take an elderly couple who want to go on a cruise, barring the boa sinking which is highly unlikely, risk may involve losing your false teeth overboard to having a heart attack during morning stretches. So the elderly couple arrive home safely having paid a small amount of travel insurance, they feel it was well worth the cost as it would have covered the cost of something going wrong. Also the insurer is happy to take on that risk and payout on the false teeth or the heart attack and still make money, the insurer wants some risk to make a profit because most of the time pensioners don’t get heart attacks or lose their teeth on cruises and insurance companies make profits from that.
So this is how it works in the uranium market, the utility company agrees to buy uranium from a producer and the agreement stipulates the price will be the UxC settlement price in 12 months time. So for the next 12 months, both the utility and the producer are at the mercy of future prices as they may go up or down during those 12 months.
So this is where the utility wants some insurance and it is willing to pay for the insurance costs to reduce the risk of something going really wrong, for example, the price spiking when the time for payments arrives. In this example, at the same time as agreeing to the deal (Contract 1) with the producer to pay him in 12 months time, the utility company buys a futures contract (Contract 2) from a market that is specially set up for this. The futures contract is for the same amount of uranium as the deal with the producer and let's say the price is based on the futures price in a year’s time also.
A year passes by and the time to pay the producers has arrived, the price is based on the price of uranium that day as agreed a year earlier. That price has gone up by 20%, so it initially seems the utility company is going to have to pay more than the price was a year ago, but now we have the other contract, the futures contract which the utility company now closes out and make a profit of 20% on it, so it’s now neither a loss nor a gain from a year ago. This is the world of hedging, and this part, where you end up back at neither profit or loss is called offsetting, and that is why the futures market exists.
We have by the way ignored some other incidental costs that come along with using a futures market. These are what are called ‘bid and offer spreads’, brokerage fees and margin requirements. So you may wonder who is on the other side of the second transaction (Contract 2), that is, the futures contract, and typically they are speculators, they want risk so this is the right place for them. There is also a middleman between buyer and seller here too.
When we think of a speculator who sounds like he is betting on a future price and has no interest in using uranium in any physical form but just in making some money on the ups and downs of the price, it all sounds quite ridiculous. However there is another function to the futures market and that is liquidity, which allows for more transactions to occur.
Here’s how we can understand this. You arrange a party and tell everyone the pizza will arrive at eight o’clock and you made a great deal with the pizza guy a week earlier where he promised to deliver at eight o’clock at a cost of $100. A week goes by and on party night at seven-thirty, pizza guy calls to say, he has changed his mind about the deal and will deliver the pizza but at a cost of $150. With all your hungry guests you pay but you are pretty upset by the way pizza guy treated you by raising the price in the last hour. How you can avoid this situation the next time you have a party or should you just stop inviting friends over for pizza?
So a few months later, its party time, and a week before, you decide to call pizza guy and warn him that if he raises the price at the last moment again, this time you will not pay. So this time around, you come up with a new agreement. A week before the party, you both deposit $100 in a bank account and each day, the plan is to check the Domino's pizza website (which is an independent pizza company), you are both agreeable to treating this as point of reference for the price of the pizza and that will be the price of the transaction on the last day, in the meantime, you tell the bank to move money between each account based on the Daily Domino's Pizza price. If it goes up you get the money, if it goes down Pizza guy gets it.
On the first day, let’s say Monday, Domino's pizza value is $90, so the bank transfers $10 from your account to the pizza guys account, Day 1 your down $10. Tuesday, the price changes again this time back to $100, so the bank transfers $10 back into your account and you both have $100 again, then Wednesday Domino's Pizza is $108 so the bank transfers $8 into your account from the pizza guys account as he is down to $92, this toing and froing goes on each day until Day 7, and lets say Domino's Pizza is at $105 on the day of the party, so Pizza guy has $95 in his account and you have $105 in yours, pizza is delivered and you pay him $105 which is fine because that is the same amount in your account, he’s fine with that too as he has received $105 from you and had $95 in his account, so the pizza cost you $100, that’s better than what happened at the last party.
You will also notice your risk is reduced because each day the bank is moving the money from account to account depending on the Domino's Pizza price. Knowing there is less risk means more participants are willing to do this type of deal, and this increases liquidity. It’s a form of lubricant in the wheels of the market. If it didn’t exist some deals would just never get done because the risk for one or both parties would increase to the point where it just wouldn’t be worth doing.
What is noteworthy with our pizza story and the futures market is that it is a zero-sum game (again ignoring associated costs mentioned earlier). The money just flows from one party to the other, however, in the futures market the transaction is not directly between the buyer and seller but with the middle man or what is called a clearinghouse. This too is a safety mechanism between buyer and seller. Another flaw in the pizza story is Pizza guy has little or no incentive to lodge money into a bank account, so you need to find some other person to fill that role, a speculator who sees the potential to profit from taking risks.
I have not covered margin calls here which are also part of how the futures markets work. The intent behind covering the futures market was to assist you, the reader, in understanding how hedging risk is achievable in the uranium market and that there are a number of players involved, utilities, speculators who may take the form of hedge funds or other investors, there are exchanges, clearinghouses, and market research companies who all play their part to make this function.
The uranium futures market is called the NYMEX UxC Uranium U3O8 Futures Contract. The name tells us contracts are traded on the New York Mercantile Exchange and that UxC is also partnered with the exchange and provides the uranium prices which allow the market to function. The Exchange facilitates the futures contracts market between participants.
If you want to learn more about the futures market, I recommend the MIT OpenCourseWare lectures on forward and future markets which you’ll find on YouTube. It’ll save you doing a four-year degree in finance and all from the comfort of your own home. If the lecturer needs to step it up a bit you can speed him up to double which means you can get the four-year degree in two years instead, and save yourself the fees too. Thanks, MIT.
There may be risk for the utilities which explains why they might want to hedge this risk using the futures market. But sometimes the utilities too can be a risk for the producers, we’ll come to an example of that later.
So amongst all of the deals being done and different ways of doing them, what kind of price will work for buyers and sellers? Well at the moment (2019) the spot price indicators are below $30 per pound, So perhaps a better question is how much does it cost a producer to produce a pound sustainably?
At this stage, that could be a loaded question as different producers give different answers for this, but we are mostly only interested in the fully allocated cost of production. A bit like French nuclear standardization, it makes things a lot easier to understand if we can standardize how we compare producers which is not easy in the uranium space.
The industry seems to have four different cost types which can be confusing. The WNA has descriptions for each of these (which they source from TradeTech). In the order of the ‘lowest’ cost to the fully allocated, we have ‘cash operating’ cost, ‘total production’ cost, ‘all-in’ cost and ‘fully allocated’ cost. The wording is confusing but the ‘fully allocated’ includes the most costs (not all in).
According to the US Energy Information Administration 2018 Domestic Uranium Production Report, US producers sold 1.5 million pounds of uranium concentrate in 2018 at a weighted average price of $33. Earlier we mentioned in the US there are zero operating underground mines and there are zero operating open pit mines, but there are six in-situ leaching facilities in operation. This may be an indication that if the in-situ leaching (ISL) methods are working during the bad times - when prices are down, then it is likely they will do even better when times are good.
And we are back it the lemon stand, lemons cost one dollar and sugar cost 10 cents. You must sell above that price to make a profit. If you own a mine and the uranium costs $30 to extract and you only sell it for $25 you will eventually go bankrupt. At the moment there are lots of producers who say if the price goes up they will be doing very well. However, if there are six producers still producing when prices are low, they must be worth considering from an investors point of view right now, based on survival of the fittest from the last cull. In the last cycle, uranium miners went from 400 to 50.
This brings us to the subject of reserves. Someone has ‘measured’ (read estimated, read guesstimated) what is in the ground but that doesn’t mean it is worth going after that amount. The reason for this is some of it may be difficult to access and extract. So let's talk about this in terms of economics too. Reserves are what is in the mine except the number is estimated on what they cost to get out, it’s called ‘pounds in the ground’. For example, according to the EIA, they say the US has 43 million pounds available at a cost of $30 and at $50 it rises to 174 million pounds. If the price rises then so do the pounds available. It sounds so simple but the reality is, it’s underground so everybody is estimating what they think it will cost, but until you start mining operations, who really knows? When it comes to investing in an individual producer, the producer will claim that for ‘x’ price he can extract uranium but only time will tell.
So the question remains, what price will work for uranium producers? One answer, of multiple answers, comes from investors and miners in general in the space and they put it at somewhere around $60 per pound should work. Amongst all the complexity and opaqueness in the market, they have modeled out all the moving parts to determine a price.
Earlier we mentioned UxC and Tradetech who also issue information on long term pricing - we’re talking five years away and they put it nearer $30. Here we have a large variance, investors say $50-60 and the market consultants say $30. Who is right? Everyone is wrong sometimes. A better question is, who is right about the price in five years? Miners cannot sustainably produce at $30 per pound.
Investors don't think the market analysts have done a very good job of predicting prices either in the past or present. While it sounds like, they could be to blame (in part) for stock prices of mining companies being so low, due to valuations being partly priced from spot and long term pricing from market analysts. Irritation can become an opportunity as it gives the retail investor time to get into a position before the true price is discovered and the buyers hit the panic button. Nuclear industry and panic is usually a dangerous combination, but in this context, it could be very lucrative if you are in the right position on the chessboard. Maybe we should be thankful to the analysts if they are having difficulty with future pricing estimates.
Chapter 8 The promises of a miner - How dreams differ from reality
On the WNA website, you will find a list of the 10 largest producing mines in 2017 which are worth discussing to gain an insight into the challenges the miners face and the costs they encounter to produce at each location. We also need to add updated information as this list is now out of date as we will see. We won't cover all of them as some are in the same countries and operated the same way, so I have picked a few interesting ones and we’ll hopefully learn some lessons along the way.
Currently, the largest operating mine is Cigar Lake in Canada. Here is a classic example of how it can all go very wrong at the beginning. They started construction in 2005 expecting to pay CAD660 million, the reality was they paid CAD2.6 billion and started mining in 2014. Always good to remember that, perhaps in the near future you are considering a company that throws out some estimate for starting to mine and gives the timeframe and cost. Reality versus dreams.
The uranium at Cigar Lake is around 480m below the ground. Water is pressurized to cut the ore out and it is pumped for treatment as a slurry. This is not a simple mining operation as the water boring is remote controlled and ground freezing is also used to stop water getting into the mine. Ground freezing involves pumping chemicals into pipes to literally freeze the ground to prevent groundwater seepage and reduce pumping water out of the mine. If you could walk inside a hollow ice cube, that’s a similar idea. 8,165 tonnes of U3O8 were produced in 2017 and the mine has an expected life span of 15 years, apparently, the average operating cost per pound is $19.
While in Canada we can go for an honorable mention, McArthur River mine was number one for quite some time, however, operations were temporarily suspended, and in 2018 the workers went from 845 workers to 210 workers. This was due to oversupply in the current market according to the operators Cameco. Temporary suspension originally meant 10 months which has turned into an indefinite duration. So McArthur is no longer number one. Just to throw a tangible number at it, the company website says the estimated average operating cost per pound of U3O8 is $15. The 210 workers still on the payroll are on care and maintenance duties. Paying that many staff just to keep a mine in a state that produces nothing but at some stage may need to be ‘switched’ back on, gives us an idea of the costs of running a mine like this. Obviously, it is more cost effective to keep the staff on than to send everyone home and when the time comes, switch it all back on. That option must be considered more expensive.
Most of us know where to find Canada on a map, the country of Kazakhstan may be slightly trickier, below Russia and to the left of China and Mongolia. Kazakhstan is ex-Soviet. It is also the world's biggest supplier of uranium at around 40%, so a key country for the uranium market. All uranium mining and exploration are controlled by Kazatomprom. The company is government controlled and recently floated on the local exchange and on the London Stock Exchange. The timing of this flotation is considered significant to investors and experts in the uranium space.
Mining at the largest mine there is an ISL operation called Totkuduk which produced around 3,500 tonnes of uranium in 2018. They pump sulfuric acid into the ground there which is not the same as other places, again ore dependent. The country is also arguably considered to be the cheapest producer, some say $20/lb and other experts say $30 - $35/lb for all in costs of production. That kind of guestimate doesn’t seem very useful, but it’s the best information we have available. On a national level, they have also reduced production in 2018 from what they produced the year before. Kazakhstan also has an advantage over the West with regards to how fast a mine can come online, at around 3 years. In the West, you can easily double or even triple that figure due to red tape.
So departing Kazakhstan we head to Australia, to a mine called Olympic Dam. Operated by the company BHP, the mine also yields copper, gold, and silver so it’s not a straightforward uranium mine. In 2018 it produced 3,736 tonnes of U3O8. Here is an opportunity to understand the dangers of forward-looking statements, that is, trying to predict the future. In 2014, the company gave some estimates on what they would achieve in 2018 and beyond, putting the estimates at 5,000 tonnes in 2018 and 10,000 in the mid-2020s according to the WNA. They only managed 3,736 tonnes and not 5,000. Olympic dam is planning a major expansion which could see uranium jump from 3,700 to 10,000 - 15,000 tonnes. We’ll see how they do.
So for diversity and because in 2017, this mine was number seven in the world we need to go to Niger. The mine is called SOMAIR and is operated by Areva. It is an open pit mine that has been operated since 1971 which sounds like a long time ago. They produced 2,111 tonnes of uranium in 2017. Along with Niger, the other African country which is important with regard to uranium is Namibia. They both have a history of uranium mining. Which one is arguably more stable? Namibia you might bring the wife and kids on safari there, Niger you probably wouldn’t. 70% of exports in Niger are made up of uranium. So pretty important to the country. On the other hand for Namibia, uranium exports are nearer 6%. Apart from being in Africa, the economies are quite different, risk and reward ratios are hopefully commensurate.
Moving away from the WNA top ten list and into what the future top ten list may hold. In the last cycle, the miners and explorers went from 400 companies to around 50 today. Some of the current explorers, which people get excited about, are unlikely to even be part of the next cycle. So you have to wonder why are people getting so excited about these companies? Take, for example, NexGen which is in Canada and sits on a large deposit. Now when we say ‘sits on’, that doesn’t necessarily mean that they’ll extract it all. Companies tend to throw out a number ‘our deposits have one trillion pounds of uranium’ and they may as well use that number because what is way more important than what they are sitting on is the cost to extract it. If you are sitting on a box of seawater, you are also sitting on uranium, but the cost to extract it into useful amounts will cost you more than what you can sell it for - catch my drift?. (I’ll come back to seawater later).
So NexGen’s big deposit is called Arrow. Explorers tend to drill lots of holes in the ground, a bit like an underground Swiss cheese, and based on what they pull up from these holes, they can make an estimate on what is below them which includes the grade of the material too. So NexGen has drilled and will keep making Swiss cheese and telling anyone who listens, how much they are sitting on - that seems to be standard practice for explorers. Here is the issue - permitting. Permitting takes so long that by the time someone discovers what is under their feet to the day when you can actually mine your first pound you can expect to wait years, let’s say around five to ten years in a place like Canada. In Africa and other locations, this is faster, it’s claimed within six months (for permitting) which sounds brilliant and is a big difference from the US & Canada. So Arrow was discovered in February 2014 and if we have to wait 5-10 years they could even miss the next spike in prices. Analysts say we may see product from Arrow by 2023.
So again why are those in the know so excited and quick to invest in a company like that? The answer is 'take over'. A fatter company comes along and buys them out because they want that piece of ground and the stock price goes up. So if you are going to start exploring explorers, think about the difference between those who can actually produce with those that just sit and wait to be swallowed up by someone else. Why is that an important difference? Because making Swiss Cheese and not getting a penny for it, is all expenses and no income. So the actual value of the company on a structural level cannot be going up as it's all based on future maybes and there is possibly no income stream. Again I’ll refer to Cigar Lake mine, they started construction in 2005, expecting to pay CAD660 million, the reality was they paid CAD2.6 billion and started mining in 2014. Patience Padawan, Patience.
Here is an example of how this goes down. In August 2011, a company called Hathor Exploration, a junior explorer were sitting on a nice piece of Swiss cheese, and were approached by Cameco with an offer. The stock price had been at around $2.67, Cameco offered $3.75 per share and the stock price jumped to $3.88. Hathor declined the offer from Cameco and said it wanted $6 - a nice round number. By October Rio Tinto jumped in with an offer of $4.15 and by November it was a done deal at $4.70. So that’s the type of thing you are likely to see in the future too.
That was 2011, what happened to the big deposit ‘Roughrider’ which made Hathor so attractive? According to Rio Tinto’s 2017 end of year results report, ‘Roughrider’s recoverable amount was determined to be nil following a decision in the first half of 2017 to cease further expenditure on the project.’ Imagine the third highest grade deposit in the world written off. The lesson here is making money in uranium doesn't mean having to mine a pound of it. From the explorers perspective all you may have to do is some 'Swiss cheesing', that is, drill some holes make a lot of noise and sit back for a fat company to buy you out. I can’t help myself..is that why they called this the Roughrider deposit? Because it certainly was for Rio Tinto.
Don’t get confused here, we are not saying the likes of NexGen is not attractive, it could be fantastic for investors, but the lesson is don’t think making money from explorers or junior miners for that matter in this market necessarily has anything to do with physically bringing uranium above ground. Perception maybe everything.
Up to this point we have covered conventional uranium mining techniques that are commercially active today. The following could be described as a couple of red herrings or maybe not. Uranium is relatively abundant, for example, according to some estimates, there are 4.5 billion tonnes of uranium in seawater. The problem is making into usable uranium is costly and way beyond what it costs to mine it. It is also worth considering for people who fear uranium that when they go swimming in the deep blue sea and accidentally swallow sea water they are in effect consuming uranium, albeit a small amount, and it's likely they have lived to tell the tale.
Another potential source is uranium that is present in phosphate. The uranium can be extracted using a solvent to separate it from the phosphate. An example of this is a mine in Florida. Bone Valley in Florida was a phosphate mine which also had a uranium content of around 0.009%, it’s shut down now. Recovery costs for the uranium varied from plus twenties to the $50 range, which seems like quite a wide range. Of course, if this was really a thing companies would be doing it already. Apparently, commercial operations died out in the ’90s. If uranium prices went back up, could this become a thing? If it makes commercial sense, why not? But if the historical ups and downs of uranium are anything to go by it may only be a flash in the pan when uranium prices spike.
Going back to seawater with its seemingly endless supply, scientists have been trying to extract uranium from it. Uranium in seawater is about 3 parts per billion. One way currently being explored in a lab is throwing acrylic fibers in seawater and then squeezing out the uranium. To date, two pounds of fiber for a month in seawater will get you 5 grams. A study by the University of Texas says costing for a kilogram of uranium would be around $640 per kilo and with a few ‘if and buts’ they whittle this down to $360 per kilo which puts these numbers in the $160-300 per pound range. Yes, dunking cloths in seawater and squeezing them out, sounds like a great gig if you are a scientist, but definitely not going to affect things on a commercial level presently.
Chapter 9 The Japanese - How it can really go sideways
Nassim Taleb coined the phrase ‘black swan’ event, it's a term which refers to a situation that arises that no one saw coming and has a really bad effect. For example, when a tsunami and earthquake hits a nuclear reactor. So on March 11th, 2011, an earthquake hits off the coast of Japan. Eleven nuclear reactors in the affected area go into shutdown as they are supposed in an event like that. The trouble came not from the earthquake but the tsunami that followed. To understand the issue, we need to understand how the reactors need to be kept cool.
So earlier we talked about fuel which goes into fuel rods, which are basically just metal rods with fuel pellets inside them. Typically 200 or so of these rods are configured together make a fuel assembly and a couple of hundred of those fuel assemblies make up the reactor core. All ready to go, these can be immersed in water and the water temperature regulates the amount of energy that is given off. So fission is when neutrons are released and absorbed by the U235 and these chain reactions need to be controlled, to prevent it from both ending prematurely and getting out of control. Control rods are used and can be inserted into the reactor core to absorb some or all neutrons and even shut down the process.
So far so good, the earthquake hits and the control rods go in and the reactors go into shut down. That sounds simple enough, except it can take several days for the heat to be reduced in the reactor to what is called a ‘cold shutdown’. That problem gets worse when you have a tsunami less than one hour away. We also need to remember there was not one but six reactors on the site. Units 4-6 weren’t operating at the time but Units 1-3 were.
If you can click on the below link, I am hoping it will move my ebook up the amazon search page so non redditors can see it. Thanks.
https://www.amazon.com/Planet-Uranium-Beginners-Guide-Market-ebook/dp/B07TCHF7T7/ref=cm_cr_arp_d_pdt_img_top?ie=UTF8
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Dear community, I am the author of the following book which I have posted in its entirety.
I like to research my investments thoroughly, so the following is my thesis that this is a 'when, not if scenario'.
As not many seem to want to buy it on Amazon, I am making it available to read in posts below. Enjoy!
If you click on the below link, I am hoping it will move my ebook up the amazon search ranks so non redditors can see it. Thanks.
https://www.amazon.com/Planet-Uranium-Beginners-Guide-Market-ebook/dp/B07TCHF7T7/ref=cm_cr_arp_d_pdt_img_top?ie=UTF8
Due to reddit post size limits, it is in different posts.
Link to Chapters 1-6
https://www.reddit.com/UraniumSqueeze/comments/le3ubj/planet_uranium_a_beginners_guide_to_the_uranium/
Below are Chapters 7-8
Chapter 7 The guardians of the prices - Contracts, spot, and futures
So the way uranium moves around between sellers (producers) and buyers (users) is typically based on long term contracts. Long terms contracts are most suitable to ensure a steady supply, thereby ensuring a steady supply of electricity which end users tend to prefer.
Along with long term contracts, we have a spot price indicator. So to explain the term ‘spot price indicator’ we need to discuss nuclear fuel brokers. If you have ever bought or sold a property, part of the process involves using a realtor or real estate agent. He or she posts a photo of the property on the property sales website and later people get shown around your house and if things go well, the realtor calls you to say an offer from a prospective buyer has been made, you can either decline or you can make a counteroffer. The estate agent is the middleman and it’s in his interest to find agreement between you, the seller, and the buyer. Once the deal is down, he gets his commission.
The uranium industry also has its ‘real estate agents’ and these are called nuclear fuel brokers. Relative to actual realtors which according to the U.S. National Association of Realtors 2018 Member Report number 1.3 million realtors, there are very, very few nuclear brokers.
Some of the brokers out there are New York Nuclear Corporation (NYNCO), there is Numerco which is headquartered in the UK, there are also Uranium Markets and Evolution Markets. So they go about their daily business of doing deals between uranium buyers and sellers and take their cut as a realtor would. These contract negotiations are private as opposed to other commodities that may trade on an open market. So why do we hear about a spot price indicator?
Well, this is where another cog in the big wheel of uranium comes in, there are uranium market consultants that aggregate or gather data from some of the fuel brokers to come up with a daily or weekly price. For example, if you go to the Cameco website (Cameco is a producer), you will see a link for the ‘uranium price’. Two prices are shown from two of these market consultants. These companies don’t just post prices of uranium, they also, amongst providing other services, do research and compile reports on the industry.
UxC is one of these market consultants and they post a daily uranium price which is what they call the UxC BAP which stands for Broker Average Price. The daily BAP is built from two brokers sending information to UxC on the deals they have done, they are Evolution Markets and Numerco Limited. What is noteworthy here is not all nuclear fuel brokers are participating in this so this is only an indicator of prices.
The other market consultant that posts prices is Tradetech and if you visit their site you will see what they call the ‘Weekly Spot Price Indicator’, which is similar to the UxC price but weekly rather than daily. Both of these information gatherers also post other price information, for example, midterm prices, long term prices, and prices on different products such as UF6, etc.
So in general, deals are done between producers and sellers by negotiation and ultimately a contract with a duration that could run into the years. This highlights that the ‘spot price indicator’ is just that, an indicator, it is not intended to reflect the true price of production or the future price either.
Here is the rub for uranium miners, if they agree on a long term deal at a given price and the spot price indicator goes up during that time, the miners are going to feel that they could have made more profit by not having locked themselves into a long term contract at a lower price. Again the opposite may be true too. If the spot price indicator goes down while they are locked into a long term contract, they can feel pretty smart for locking a seller into a long term contract which may ride out the lower priced times.
They could even stop mining and just buy contracts from other producers, basing the prices on what the spot market indicator price is at, safe in the knowledge that it is at a low price. They could then deliver that product to whoever they made the long term contract with. This would also save the miners using up their own mine supply which is finite.
Cameco is a real-world example of this type of situation. Cameco is a uranium produceminer. According to its website, it operates in Canada and Kazakhstan amongst other places and has licensed capacity to produce 53 million pounds a year. In 2018 they said their delivery commitments were 32 - 33 million pounds, they meet these by three means. The first is taking pounds from their mines, the second comes from long term contracts with others and finally, they can go into the spot market or their own inventory (storage) for the rest. Yes, this example adds extra confusion due to the fact Cameco itself is a long term contract buyer as well as a longer-term contract seller. In 2018 they mined 9 million pounds, bought another 8-9 million through long term contracts which left them needing around 14 million more to cover their commitments.
Note earlier, we said they had licensed capacity to produce 53 million which does not mean that is how much they actually produce, you can see a big gap between producing 9 million and 53 million. It is clearly cheaper for them to buy a product from other producers than to produce it themselves. So are they a producer or just a middle man? It seems the answer is both, in a sense.
Long term contracts typically last between 4-10 years. In the next six years, quite a large proportion of these will expire, and the buyers will be back at the negotiating table looking for more contracts. If you are a producer, you are hoping that you will be able to sell to them and lock in a good customer for some years.
I want to return here to the term ‘spot market’. We said earlier that Cameco buy uranium in the spot market and that is how it is worded on Cameco’s website too. Arguably, there is no such thing as a spot market in the uranium market, and yet we find this term used readily by the producers and in the uranium space, so first, a quick definition. According to Investopedia’s website, a spot market is where commodities (amongst other items) are traded for immediate delivery.
Cameco is a good example to learn from because in the first instance, they deal directly with the sellers (utilities) which means they don't use an independent broker, but as mentioned earlier to meet their commitments they also go to the ‘spot market’. We need to remember that we are talking about purchasing through a broker who then brokers the deal which doesn’t typically include immediate delivery as defined by a true spot market. This approach to the ‘spot market’ may include issuing a ‘request for proposal’ (RFP) with terms around delivery times, source of supply and other conditions. Again this assists us to understand, this is not a spot market in the true sense of the word.
Now seeing as we have dug into pricing in this chapter, it would be useful to consider the futures market, this differs from the ‘spot market’. So to start let’s do a simple definition of a futures market. Again, the website Investopedia defines the futures market as “an auction market in which participants buy and sell commodities and futures contracts for delivery on a specified future date”.
The futures markets allow people to buy and sell risk. Do you want risk or do you want to reduce risk? Who would want risk? The answer is speculators because they can make a good profit from it. Who wants to reduce risk? Well in the uranium market, it is typically the utility company, remember they want to produce electricity and usually companies like that have been around for a long time and are conservative by nature and want to reduce risk.
Some people will travel far and wide with no form of travel insurance. Others won’t leave the front gate of their home without travel insurance. Let’s take an elderly couple who want to go on a cruise, barring the boa sinking which is highly unlikely, risk may involve losing your false teeth overboard to having a heart attack during morning stretches. So the elderly couple arrive home safely having paid a small amount of travel insurance, they feel it was well worth the cost as it would have covered the cost of something going wrong. Also the insurer is happy to take on that risk and payout on the false teeth or the heart attack and still make money, the insurer wants some risk to make a profit because most of the time pensioners don’t get heart attacks or lose their teeth on cruises and insurance companies make profits from that.
So this is how it works in the uranium market, the utility company agrees to buy uranium from a producer and the agreement stipulates the price will be the UxC settlement price in 12 months time. So for the next 12 months, both the utility and the producer are at the mercy of future prices as they may go up or down during those 12 months.
So this is where the utility wants some insurance and it is willing to pay for the insurance costs to reduce the risk of something going really wrong, for example, the price spiking when the time for payments arrives. In this example, at the same time as agreeing to the deal (Contract 1) with the producer to pay him in 12 months time, the utility company buys a futures contract (Contract 2) from a market that is specially set up for this. The futures contract is for the same amount of uranium as the deal with the producer and let's say the price is based on the futures price in a year’s time also.
A year passes by and the time to pay the producers has arrived, the price is based on the price of uranium that day as agreed a year earlier. That price has gone up by 20%, so it initially seems the utility company is going to have to pay more than the price was a year ago, but now we have the other contract, the futures contract which the utility company now closes out and make a profit of 20% on it, so it’s now neither a loss nor a gain from a year ago. This is the world of hedging, and this part, where you end up back at neither profit or loss is called offsetting, and that is why the futures market exists.
We have by the way ignored some other incidental costs that come along with using a futures market. These are what are called ‘bid and offer spreads’, brokerage fees and margin requirements. So you may wonder who is on the other side of the second transaction (Contract 2), that is, the futures contract, and typically they are speculators, they want risk so this is the right place for them. There is also a middleman between buyer and seller here too.
When we think of a speculator who sounds like he is betting on a future price and has no interest in using uranium in any physical form but just in making some money on the ups and downs of the price, it all sounds quite ridiculous. However there is another function to the futures market and that is liquidity, which allows for more transactions to occur.
Here’s how we can understand this. You arrange a party and tell everyone the pizza will arrive at eight o’clock and you made a great deal with the pizza guy a week earlier where he promised to deliver at eight o’clock at a cost of $100. A week goes by and on party night at seven-thirty, pizza guy calls to say, he has changed his mind about the deal and will deliver the pizza but at a cost of $150. With all your hungry guests you pay but you are pretty upset by the way pizza guy treated you by raising the price in the last hour. How you can avoid this situation the next time you have a party or should you just stop inviting friends over for pizza?
So a few months later, its party time, and a week before, you decide to call pizza guy and warn him that if he raises the price at the last moment again, this time you will not pay. So this time around, you come up with a new agreement. A week before the party, you both deposit $100 in a bank account and each day, the plan is to check the Domino's pizza website (which is an independent pizza company), you are both agreeable to treating this as point of reference for the price of the pizza and that will be the price of the transaction on the last day, in the meantime, you tell the bank to move money between each account based on the Daily Domino's Pizza price. If it goes up you get the money, if it goes down Pizza guy gets it.
On the first day, let’s say Monday, Domino's pizza value is $90, so the bank transfers $10 from your account to the pizza guys account, Day 1 your down $10. Tuesday, the price changes again this time back to $100, so the bank transfers $10 back into your account and you both have $100 again, then Wednesday Domino's Pizza is $108 so the bank transfers $8 into your account from the pizza guys account as he is down to $92, this toing and froing goes on each day until Day 7, and lets say Domino's Pizza is at $105 on the day of the party, so Pizza guy has $95 in his account and you have $105 in yours, pizza is delivered and you pay him $105 which is fine because that is the same amount in your account, he’s fine with that too as he has received $105 from you and had $95 in his account, so the pizza cost you $100, that’s better than what happened at the last party.
You will also notice your risk is reduced because each day the bank is moving the money from account to account depending on the Domino's Pizza price. Knowing there is less risk means more participants are willing to do this type of deal, and this increases liquidity. It’s a form of lubricant in the wheels of the market. If it didn’t exist some deals would just never get done because the risk for one or both parties would increase to the point where it just wouldn’t be worth doing.
What is noteworthy with our pizza story and the futures market is that it is a zero-sum game (again ignoring associated costs mentioned earlier). The money just flows from one party to the other, however, in the futures market the transaction is not directly between the buyer and seller but with the middle man or what is called a clearinghouse. This too is a safety mechanism between buyer and seller. Another flaw in the pizza story is Pizza guy has little or no incentive to lodge money into a bank account, so you need to find some other person to fill that role, a speculator who sees the potential to profit from taking risks.
I have not covered margin calls here which are also part of how the futures markets work. The intent behind covering the futures market was to assist you, the reader, in understanding how hedging risk is achievable in the uranium market and that there are a number of players involved, utilities, speculators who may take the form of hedge funds or other investors, there are exchanges, clearinghouses, and market research companies who all play their part to make this function.
The uranium futures market is called the NYMEX UxC Uranium U3O8 Futures Contract. The name tells us contracts are traded on the New York Mercantile Exchange and that UxC is also partnered with the exchange and provides the uranium prices which allow the market to function. The Exchange facilitates the futures contracts market between participants.
If you want to learn more about the futures market, I recommend the MIT OpenCourseWare lectures on forward and future markets which you’ll find on YouTube. It’ll save you doing a four-year degree in finance and all from the comfort of your own home. If the lecturer needs to step it up a bit you can speed him up to double which means you can get the four-year degree in two years instead, and save yourself the fees too. Thanks, MIT.
There may be risk for the utilities which explains why they might want to hedge this risk using the futures market. But sometimes the utilities too can be a risk for the producers, we’ll come to an example of that later.
So amongst all of the deals being done and different ways of doing them, what kind of price will work for buyers and sellers? Well at the moment (2019) the spot price indicators are below $30 per pound, So perhaps a better question is how much does it cost a producer to produce a pound sustainably?
At this stage, that could be a loaded question as different producers give different answers for this, but we are mostly only interested in the fully allocated cost of production. A bit like French nuclear standardization, it makes things a lot easier to understand if we can standardize how we compare producers which is not easy in the uranium space.
The industry seems to have four different cost types which can be confusing. The WNA has descriptions for each of these (which they source from TradeTech). In the order of the ‘lowest’ cost to the fully allocated, we have ‘cash operating’ cost, ‘total production’ cost, ‘all-in’ cost and ‘fully allocated’ cost. The wording is confusing but the ‘fully allocated’ includes the most costs (not all in).
According to the US Energy Information Administration 2018 Domestic Uranium Production Report, US producers sold 1.5 million pounds of uranium concentrate in 2018 at a weighted average price of $33. Earlier we mentioned in the US there are zero operating underground mines and there are zero operating open pit mines, but there are six in-situ leaching facilities in operation. This may be an indication that if the in-situ leaching (ISL) methods are working during the bad times - when prices are down, then it is likely they will do even better when times are good.
And we are back it the lemon stand, lemons cost one dollar and sugar cost 10 cents. You must sell above that price to make a profit. If you own a mine and the uranium costs $30 to extract and you only sell it for $25 you will eventually go bankrupt. At the moment there are lots of producers who say if the price goes up they will be doing very well. However, if there are six producers still producing when prices are low, they must be worth considering from an investors point of view right now, based on survival of the fittest from the last cull. In the last cycle, uranium miners went from 400 to 50.
This brings us to the subject of reserves. Someone has ‘measured’ (read estimated, read guesstimated) what is in the ground but that doesn’t mean it is worth going after that amount. The reason for this is some of it may be difficult to access and extract. So let's talk about this in terms of economics too. Reserves are what is in the mine except the number is estimated on what they cost to get out, it’s called ‘pounds in the ground’. For example, according to the EIA, they say the US has 43 million pounds available at a cost of $30 and at $50 it rises to 174 million pounds. If the price rises then so do the pounds available. It sounds so simple but the reality is, it’s underground so everybody is estimating what they think it will cost, but until you start mining operations, who really knows? When it comes to investing in an individual producer, the producer will claim that for ‘x’ price he can extract uranium but only time will tell.
So the question remains, what price will work for uranium producers? One answer, of multiple answers, comes from investors and miners in general in the space and they put it at somewhere around $60 per pound should work. Amongst all the complexity and opaqueness in the market, they have modeled out all the moving parts to determine a price.
Earlier we mentioned UxC and Tradetech who also issue information on long term pricing - we’re talking five years away and they put it nearer $30. Here we have a large variance, investors say $50-60 and the market consultants say $30. Who is right? Everyone is wrong sometimes. A better question is, who is right about the price in five years? Miners cannot sustainably produce at $30 per pound.
Investors don't think the market analysts have done a very good job of predicting prices either in the past or present. While it sounds like, they could be to blame (in part) for stock prices of mining companies being so low, due to valuations being partly priced from spot and long term pricing from market analysts. Irritation can become an opportunity as it gives the retail investor time to get into a position before the true price is discovered and the buyers hit the panic button. Nuclear industry and panic is usually a dangerous combination, but in this context, it could be very lucrative if you are in the right position on the chessboard. Maybe we should be thankful to the analysts if they are having difficulty with future pricing estimates.
Chapter 8 The promises of a miner - How dreams differ from reality
On the WNA website, you will find a list of the 10 largest producing mines in 2017 which are worth discussing to gain an insight into the challenges the miners face and the costs they encounter to produce at each location. We also need to add updated information as this list is now out of date as we will see. We won't cover all of them as some are in the same countries and operated the same way, so I have picked a few interesting ones and we’ll hopefully learn some lessons along the way.
Currently, the largest operating mine is Cigar Lake in Canada. Here is a classic example of how it can all go very wrong at the beginning. They started construction in 2005 expecting to pay CAD660 million, the reality was they paid CAD2.6 billion and started mining in 2014. Always good to remember that, perhaps in the near future you are considering a company that throws out some estimate for starting to mine and gives the timeframe and cost. Reality versus dreams.
The uranium at Cigar Lake is around 480m below the ground. Water is pressurized to cut the ore out and it is pumped for treatment as a slurry. This is not a simple mining operation as the water boring is remote controlled and ground freezing is also used to stop water getting into the mine. Ground freezing involves pumping chemicals into pipes to literally freeze the ground to prevent groundwater seepage and reduce pumping water out of the mine. If you could walk inside a hollow ice cube, that’s a similar idea. 8,165 tonnes of U3O8 were produced in 2017 and the mine has an expected life span of 15 years, apparently, the average operating cost per pound is $19.
While in Canada we can go for an honorable mention, McArthur River mine was number one for quite some time, however, operations were temporarily suspended, and in 2018 the workers went from 845 workers to 210 workers. This was due to oversupply in the current market according to the operators Cameco. Temporary suspension originally meant 10 months which has turned into an indefinite duration. So McArthur is no longer number one. Just to throw a tangible number at it, the company website says the estimated average operating cost per pound of U3O8 is $15. The 210 workers still on the payroll are on care and maintenance duties. Paying that many staff just to keep a mine in a state that produces nothing but at some stage may need to be ‘switched’ back on, gives us an idea of the costs of running a mine like this. Obviously, it is more cost effective to keep the staff on than to send everyone home and when the time comes, switch it all back on. That option must be considered more expensive.
Most of us know where to find Canada on a map, the country of Kazakhstan may be slightly trickier, below Russia and to the left of China and Mongolia. Kazakhstan is ex-Soviet. It is also the world's biggest supplier of uranium at around 40%, so a key country for the uranium market. All uranium mining and exploration are controlled by Kazatomprom. The company is government controlled and recently floated on the local exchange and on the London Stock Exchange. The timing of this flotation is considered significant to investors and experts in the uranium space.
Mining at the largest mine there is an ISL operation called Totkuduk which produced around 3,500 tonnes of uranium in 2018. They pump sulfuric acid into the ground there which is not the same as other places, again ore dependent. The country is also arguably considered to be the cheapest producer, some say $20/lb and other experts say $30 - $35/lb for all in costs of production. That kind of guestimate doesn’t seem very useful, but it’s the best information we have available. On a national level, they have also reduced production in 2018 from what they produced the year before. Kazakhstan also has an advantage over the West with regards to how fast a mine can come online, at around 3 years. In the West, you can easily double or even triple that figure due to red tape.
So departing Kazakhstan we head to Australia, to a mine called Olympic Dam. Operated by the company BHP, the mine also yields copper, gold, and silver so it’s not a straightforward uranium mine. In 2018 it produced 3,736 tonnes of U3O8. Here is an opportunity to understand the dangers of forward-looking statements, that is, trying to predict the future. In 2014, the company gave some estimates on what they would achieve in 2018 and beyond, putting the estimates at 5,000 tonnes in 2018 and 10,000 in the mid-2020s according to the WNA. They only managed 3,736 tonnes and not 5,000. Olympic dam is planning a major expansion which could see uranium jump from 3,700 to 10,000 - 15,000 tonnes. We’ll see how they do.
So for diversity and because in 2017, this mine was number seven in the world we need to go to Niger. The mine is called SOMAIR and is operated by Areva. It is an open pit mine that has been operated since 1971 which sounds like a long time ago. They produced 2,111 tonnes of uranium in 2017. Along with Niger, the other African country which is important with regard to uranium is Namibia. They both have a history of uranium mining. Which one is arguably more stable? Namibia you might bring the wife and kids on safari there, Niger you probably wouldn’t. 70% of exports in Niger are made up of uranium. So pretty important to the country. On the other hand for Namibia, uranium exports are nearer 6%. Apart from being in Africa, the economies are quite different, risk and reward ratios are hopefully commensurate.
Moving away from the WNA top ten list and into what the future top ten list may hold. In the last cycle, the miners and explorers went from 400 companies to around 50 today. Some of the current explorers, which people get excited about, are unlikely to even be part of the next cycle. So you have to wonder why are people getting so excited about these companies? Take, for example, NexGen which is in Canada and sits on a large deposit. Now when we say ‘sits on’, that doesn’t necessarily mean that they’ll extract it all. Companies tend to throw out a number ‘our deposits have one trillion pounds of uranium’ and they may as well use that number because what is way more important than what they are sitting on is the cost to extract it. If you are sitting on a box of seawater, you are also sitting on uranium, but the cost to extract it into useful amounts will cost you more than what you can sell it for - catch my drift?. (I’ll come back to seawater later).
So NexGen’s big deposit is called Arrow. Explorers tend to drill lots of holes in the ground, a bit like an underground Swiss cheese, and based on what they pull up from these holes, they can make an estimate on what is below them which includes the grade of the material too. So NexGen has drilled and will keep making Swiss cheese and telling anyone who listens, how much they are sitting on - that seems to be standard practice for explorers. Here is the issue - permitting. Permitting takes so long that by the time someone discovers what is under their feet to the day when you can actually mine your first pound you can expect to wait years, let’s say around five to ten years in a place like Canada. In Africa and other locations, this is faster, it’s claimed within six months (for permitting) which sounds brilliant and is a big difference from the US & Canada. So Arrow was discovered in February 2014 and if we have to wait 5-10 years they could even miss the next spike in prices. Analysts say we may see product from Arrow by 2023.
So again why are those in the know so excited and quick to invest in a company like that? The answer is 'take over'. A fatter company comes along and buys them out because they want that piece of ground and the stock price goes up. So if you are going to start exploring explorers, think about the difference between those who can actually produce with those that just sit and wait to be swallowed up by someone else. Why is that an important difference? Because making Swiss Cheese and not getting a penny for it, is all expenses and no income. So the actual value of the company on a structural level cannot be going up as it's all based on future maybes and there is possibly no income stream. Again I’ll refer to Cigar Lake mine, they started construction in 2005, expecting to pay CAD660 million, the reality was they paid CAD2.6 billion and started mining in 2014. Patience Padawan, Patience.
Here is an example of how this goes down. In August 2011, a company called Hathor Exploration, a junior explorer were sitting on a nice piece of Swiss cheese, and were approached by Cameco with an offer. The stock price had been at around $2.67, Cameco offered $3.75 per share and the stock price jumped to $3.88. Hathor declined the offer from Cameco and said it wanted $6 - a nice round number. By October Rio Tinto jumped in with an offer of $4.15 and by November it was a done deal at $4.70. So that’s the type of thing you are likely to see in the future too.
That was 2011, what happened to the big deposit ‘Roughrider’ which made Hathor so attractive? According to Rio Tinto’s 2017 end of year results report, ‘Roughrider’s recoverable amount was determined to be nil following a decision in the first half of 2017 to cease further expenditure on the project.’ Imagine the third highest grade deposit in the world written off. The lesson here is making money in uranium doesn't mean having to mine a pound of it. From the explorers perspective all you may have to do is some 'Swiss cheesing', that is, drill some holes make a lot of noise and sit back for a fat company to buy you out. I can’t help myself..is that why they called this the Roughrider deposit? Because it certainly was for Rio Tinto.
Don’t get confused here, we are not saying the likes of NexGen is not attractive, it could be fantastic for investors, but the lesson is don’t think making money from explorers or junior miners for that matter in this market necessarily has anything to do with physically bringing uranium above ground. Perception maybe everything.
Up to this point we have covered conventional uranium mining techniques that are commercially active today. The following could be described as a couple of red herrings or maybe not. Uranium is relatively abundant, for example, according to some estimates, there are 4.5 billion tonnes of uranium in seawater. The problem is making into usable uranium is costly and way beyond what it costs to mine it. It is also worth considering for people who fear uranium that when they go swimming in the deep blue sea and accidentally swallow sea water they are in effect consuming uranium, albeit a small amount, and it's likely they have lived to tell the tale.
Another potential source is uranium that is present in phosphate. The uranium can be extracted using a solvent to separate it from the phosphate. An example of this is a mine in Florida. Bone Valley in Florida was a phosphate mine which also had a uranium content of around 0.009%, it’s shut down now. Recovery costs for the uranium varied from plus twenties to the $50 range, which seems like quite a wide range. Of course, if this was really a thing companies would be doing it already. Apparently, commercial operations died out in the ’90s. If uranium prices went back up, could this become a thing? If it makes commercial sense, why not? But if the historical ups and downs of uranium are anything to go by it may only be a flash in the pan when uranium prices spike.
Going back to seawater with its seemingly endless supply, scientists have been trying to extract uranium from it. Uranium in seawater is about 3 parts per billion. One way currently being explored in a lab is throwing acrylic fibers in seawater and then squeezing out the uranium. To date, two pounds of fiber for a month in seawater will get you 5 grams. A study by the University of Texas says costing for a kilogram of uranium would be around $640 per kilo and with a few ‘if and buts’ they whittle this down to $360 per kilo which puts these numbers in the $160-300 per pound range. Yes, dunking cloths in seawater and squeezing them out, sounds like a great gig if you are a scientist, but definitely not going to affect things on a commercial level presently.
Chapter 9 The Japanese - How it can really go sideways
Nassim Taleb coined the phrase ‘black swan’ event, it's a term which refers to a situation that arises that no one saw coming and has a really bad effect. For example, when a tsunami and earthquake hits a nuclear reactor. So on March 11th, 2011, an earthquake hits off the coast of Japan. Eleven nuclear reactors in the affected area go into shutdown as they are supposed in an event like that. The trouble came not from the earthquake but the tsunami that followed. To understand the issue, we need to understand how the reactors need to be kept cool.
So earlier we talked about fuel which goes into fuel rods, which are basically just metal rods with fuel pellets inside them. Typically 200 or so of these rods are configured together make a fuel assembly and a couple of hundred of those fuel assemblies make up the reactor core. All ready to go, these can be immersed in water and the water temperature regulates the amount of energy that is given off. So fission is when neutrons are released and absorbed by the U235 and these chain reactions need to be controlled, to prevent it from both ending prematurely and getting out of control. Control rods are used and can be inserted into the reactor core to absorb some or all neutrons and even shut down the process.
So far so good, the earthquake hits and the control rods go in and the reactors go into shut down. That sounds simple enough, except it can take several days for the heat to be reduced in the reactor to what is called a ‘cold shutdown’. That problem gets worse when you have a tsunami less than one hour away. We also need to remember there was not one but six reactors on the site. Units 4-6 weren’t operating at the time but Units 1-3 were.
If you can click on the below link, I am hoping it will move my ebook up the amazon search page so non redditors can see it. Thanks.
https://www.amazon.com/Planet-Uranium-Beginners-Guide-Market-ebook/dp/B07TCHF7T7/ref=cm_cr_arp_d_pdt_img_top?ie=UTF8
