| SUMMARY: TradeTech LLC Chief Executive Gene | | | | was much higher than the market at the time. |
| Clark talked with StockInterview about the | | | | Basically, you reached a point where the cheap |
| uranium bull market, where his price models show | | | | stuff has been sold. Now, we have to actually |
| uranium prices heading and when to expect the | | | | spend some money, some capital, to build new |
| peak of the current upward cycle of the bull | | | | facilities, new mines and new mills. That was, I |
| market. When will "hard" times again hit the | | | | think, the earliest signal of the price needing to |
| uranium market, and how long will the trough last? | | | | adjust. |
| And what does the future hold for the uranium | | | | StockInterview: Isn't there a ton of hype across |
| price? An industry insider gives us his insights. | | | | all media channels about the "nuclear renaissance" |
| StockInterview: When the uranium bull market | | | | and the demand for more nuclear energy? |
| began, did you foresee $40/pound uranium, now | | | | Gene Clark: |
| that the spot price has risen above this level? | | | | First of all, all the hype about nuclear renaissance |
| Gene Clark: I don't think any of us saw $40 per | | | | is really in the United States. The Chinese have |
| pound coming. We had price projections at the | | | | had plans to expand for a long time. The |
| time that indicated probably $25 per pound, which | | | | Japanese have been steadily adding new capacity. |
| would be a long term equilibrium price in constant | | | | Koreans have been adding new capacity. Indians |
| dollar terms. But, I think it was a surprise the | | | | have been adding new capacity all along, all the |
| price went up so high. I think what's going, the | | | | way through this, even before we started this |
| biggest factor right now, is the advent of the so | | | | discussion on nuclear renaissance. I think that |
| called hedge funds or speculator funds and other | | | | phrase is really focused more in the United |
| such groups. The price started to go up, and they | | | | States, which really hasn't ordered a plant since |
| came into the market with the express purpose | | | | 1976 or something like that. There is a boom. |
| of buying for holding and then selling into the | | | | Maybe it's the uranium renaissance. |
| market later to realize the trading profit. In 2005, | | | | StockInterview: Is all of what we've been reading |
| the hedge funds were responsible for purchasing | | | | just plain hype? |
| about 10 million pounds of the 29 million pounds | | | | Gene Clark: There is some hype, but there is also |
| purchased. I think the market is now finally | | | | some substance. A part of it is certainly a change |
| adjusting to the realities of primary supply and | | | | in public attitude about nuclear power. If I was |
| demand. It's been a depressed market for 20 or | | | | riding on an airplane, ten years ago, and someone |
| 30 years, primarily from the draw down of | | | | asked me what I did for a living, I was |
| excess inventories, and what we call secondary | | | | guaranteed to have a lousy trip, arguing about |
| supply. | | | | nuclear power. When I mention it now, I get a |
| StockInterview: Will the speculators remain active | | | | positive response. There's been a marked shift in |
| in driving the spot uranium price higher? | | | | public attitude about nuclear power. From the |
| Gene Clark: I think there is still some room for | | | | standpoint of the utilities that would be ordering |
| further speculation activity. Uranium Participation | | | | nuclear plants. To the extent that they need new |
| Corporation, for example, is rumored to be about | | | | capacity, looking at nuclear now is not off the |
| to come to the equities market again to raise | | | | drawing boards, partly because of public attitude. |
| funds for another purchase. They're asking for | | | | The industry has been moving through this trough |
| authority to buy UF6, as well as U308, and | | | | period, preparing itself for a new era. It remains |
| different forms of uranium than they were locked | | | | to be seen when the first order comes. But when |
| into before. Whether it be at the 10 million pound | | | | the first actual order of a nuclear power plant, |
| level (size of purchase), I think it kind of depends | | | | along with the license application does come, I |
| on where the market goes. If it tends to flatten | | | | think you'll see several U.S. utilities following, |
| out, then I think there's going to be obviously less | | | | probably five utilities very actively involved. |
| interest on their part. When they were active in | | | | StockInterview: When will that actually happen? |
| the market, they, of course, wanted the price to | | | | Gene Clark: I think it will come within the next five |
| go up. Therefore, they weren't too careful about | | | | years, the ordering process. Of course it will be |
| what they paid for uranium. I think that's a part | | | | probably another eight years before we actually |
| of it. In the long run, it was due for a | | | | see the first power plant from that process. |
| readjustment to reflect prices of the cost of new | | | | We're talking probably about 13 years. That's how |
| production facilities. But, the hedge funds came in | | | | long it takes. You can actually construct one in 48 |
| and overdrove the market. Eventually, what it's | | | | months, but you have to have been through the |
| going to wind up doing is, if they sell off, it could | | | | licensing. If you don't believe the anti-nuclear |
| have the impact of driving prices back down | | | | people are going to be psyched up to fight the |
| below where they would otherwise have gone. | | | | first plant coming through, then you'd be very |
| StockInterview: Did the speculators interfere with | | | | naïve. The first one is going to be more |
| the trading efficiency of the uranium market? | | | | difficult and take more time, I think. |
| Gene Clark: In theory, speculators come in, tend | | | | StockInterview: One anti-nuclear group told us |
| to take the risk and smooth out market prices. | | | | they do not believe we'll have more nuclear |
| But, it never really works out that way. They | | | | power plants in the United States. |
| always come in and only take the risk, if there's | | | | Gene Clark: That's possible, but given the current |
| an opportunity to make money. So some people | | | | circumstances, my guess is we will have more |
| make a lot of money. It does tend to upset the | | | | nuclear plants. We need the capacity, whether |
| market. If you get away from the primary users | | | | we're going to build coal plants (or other types of |
| of uranium and primary producers of uranium as | | | | power generating plants). I just came from |
| your market participants, then you tend to | | | | California, moved here (to North Carolina) six |
| introduce more noise than you would like. | | | | months ago. They were talking in California about |
| StockInterview: With that in mind, in which | | | | building gas-fired plants for base load generation, |
| direction are your price projections going? | | | | which is the most ridiculous thing you can imagine. |
| Gene Clark: We're actually updating our uranium | | | | The plants are cheap to build, but the fuel cost is |
| price forecast right now. We haven't decided on a | | | | exorbitant. I did a speech a couple of years ago, |
| reference case yet. The reference cases we're | | | | having looked at the Energy Information |
| looking at will peak at about $50 to $55 per pound | | | | Administration's projections of gas demand. All the |
| in about three years, and will then drop off pretty | | | | growth in natural gas demand is going to be in the |
| drastically. It has to do with a selling of the | | | | electric utility sector. We are going to be importing |
| speculator reserves, the uranium that's being held | | | | 60 percent of our gas supplies by 2020. Does |
| (for speculative purposes). I can see it coming | | | | that make any sense? No. We have a lot of coal, |
| back down to $30, maybe below $30 per pound. | | | | but there are lots of complaints about coal |
| Then, in the long run - out through 2020 - getting | | | | burning. In our state of North Carolina, the |
| easily back up over $40 per pound. | | | | attorney general is actually suing the Tennessee |
| StockInterview: Are you predicting a down cycle | | | | Valley Authority (TVA) for the damage from coal |
| during the course of the uranium bull market? | | | | burning of the TVA's power plants in the adjacent |
| Gene Clark: Yes. It's pretty consistent with | | | | state, in Tennessee. There's going to be continued |
| everything we're doing with the changes in | | | | pressure on coal burning. I think nuclear has as |
| requirements, in different cases of high, low, and | | | | good a shot as any in terms of new capacity. |
| medium demand. Our modeling system is | | | | StockInterview: Some critics have argued China |
| projecting this. It has to do with the supply and | | | | and India will not be able to afford the massive |
| demand balance and the cost on the margin. The | | | | nuclear power plant build up they've envisioned. |
| way to describe it is that prices have come to a | | | | Gene Clark: If you think the Chinese are going to |
| point now of higher than we would have | | | | have any problem financing things, you'd better |
| projected them to be, such that over-supply is | | | | think twice. Let's focus on India. India is a clear |
| going to evolve. The large low cost projects will | | | | case where, and it is a good rule of thumb, one |
| reach a point where supply then overshoots | | | | percent growth in gross domestic product |
| demand for a few years, which causes the price | | | | requires one percent growth in electricity |
| to come back down. Then demand growth, in the | | | | requirement. For India to grow economically, it |
| long run, picks up and puts a lot of pressure on | | | | needs electric power. Where are they going to |
| the supply market to be able to meet the | | | | get it? They have coal plants there, as well. Once |
| demand. So you wind up with pressure toward | | | | you use up all your hydro capacity, you really |
| the end of the period. | | | | don't have much to choose from, except coal, |
| StockInterview: But the markets are finicky, filled | | | | natural gas, and nuclear. To the extent that they |
| with variables, and can frequently trick price | | | | can have economic growth and export income, |
| models. | | | | coming into their country, they would be able to |
| Gene Clark: Here's what it would take to shoot | | | | finance nuclear power plants. My guess is they're |
| that down: We have a problem with small | | | | going to get the vendors of the nuclear plant to |
| numbers, and there are some very large projects | | | | help finance them. |
| - Cigar Lake, for example. The expansion of | | | | StockInterview: Are you talking about the French? |
| Olympic Dam in Australia would be going from | | | | Gene Clark: Framatome - the company that |
| about 12 million pounds of production to over 30 | | | | constructs the nuclear plants. Financing is generally |
| million pounds, if they finish. If you shift that out | | | | part of the package. The first plants in China |
| by four or five years, or if the owner decides, | | | | were basically financed by the French |
| "No, we're not going to expand at all," you have a | | | | government. If the French go into India, you'll see |
| drastic effect. Then you would wind up with $100 | | | | the same thing. The Russians have financed plants |
| per pound uranium, I think. | | | | for developing countries. That's not unusual for |
| StockInterview: What are your estimates on the | | | | them to do. The United States may, or may not, |
| peak price years and the bottom years? | | | | get involved. I think there have been some types |
| Gene Clark: A lot of things could change, but here | | | | of guarantees in the past, but not at the same |
| is what we're looking at. In one case scenario, the | | | | level as the Russians and French do it. I think |
| speculators are really going to stay out of the | | | | those are the big choices. I wouldn't be surprised |
| market and holding onto their stuff for a long | | | | to see the South Koreans involved in the reactor |
| time. If so, then we're going to be at the peak by | | | | export market. They've pretty much developed |
| the end of this year. If they stay active in the | | | | their own technology now. They have the |
| market and buying, then that stretches it out | | | | capability of building 100 percent of a nuclear |
| further. Depending on the scenario, we see the | | | | power plant in South Korea: the pressure vessels, |
| peak possibly at 2008 or so. I would say we're | | | | all the steel requirements. They can do it all. We |
| looking at a trough around the timeframe of 2011 | | | | really haven't seen them export yet, because |
| to 2013. Then back up after that. | | | | they've used up all their manufacturing capacity |
| StockInterview: How do you arrive at your | | | | for their own program. At some stage, I wouldn't |
| weekly numbers for the spot uranium price? | | | | be surprised to see that happen. And I think they |
| Gene Clark: We get our data from all of the key | | | | would be able to finance reactor export sales. |
| sources: the utility fuel managers, sales staff and | | | | StockInterview: How are the U.S. utilities going to |
| management of uranium producers and | | | | fare in getting their "share" of uranium to fuel our |
| processors, and uranium traders, brokers and | | | | domestic nuclear power plants in the context of |
| asset managers. Some are, of course, more | | | | the apparent overwhelming Asian demand? |
| cooperative than others, and whom we call | | | | Gene Clark: In reality, the U.S. utilities, which tend |
| depends on the type of information we are | | | | to wait longer to contract, may be the ones on |
| seeking. Since our price indicators are a judgment | | | | the losing end because the Chinese and the |
| call, we often focus on the losers in particular | | | | Indians will contract early. The implication of |
| recent transactions, as those will be the next to | | | | current group-think is that the Chinese and Indians |
| make offers in the market. | | | | are not going to be able to find enough uranium |
| StockInterview: Let's back up a bit. Why has | | | | for their new plants. But, they are committing for |
| uranium gone up past the levels of the "cost of | | | | supplies way out into the future. When the U.S. |
| production," which would place the spot price | | | | utilities come to the market, they're going to look |
| between $25 and $35/pound? | | | | around say, "Oh blankety- blank, what happened? |
| Gene Clark: The biggest factor, in signaling the | | | | Where's the uranium?" They'll be the ones that |
| market, was when utilities went out for long term | | | | sat around. I think that is what's going to happen |
| bid requests. They found they reached a period in | | | | unless things really change in the way contracting |
| which producers would have to build new facilities. | | | | is done in the United States. |
| Producers building those facilities felt, "I have to | | | | COPYRIGHT © 2007 by StockInterview, Inc. |
| make at least enough profit to cover a return on | | | | ALL RIGHTS RESERVED. |
| the construction costs for these facilities." That | | | | |