This interview came from: http://www.theenergyreport.com/
Emerging from the shadow of Fukushima, the nuclear sector is on the cusp of a comeback, according to Mark Lackey, chief investment strategist with Toronto-based Pope & Company. Nuclear plants have been reopened, and as many as 200 new plants worldwide are scheduled to come online. At the same time, uranium supply shortages loom on the horizon, making for bullish fundamentals for uranium miners. Lackey’s faith in the coal sectors also burns brightly. He reveals his favorites in both sectors in this exclusive Energy Report interview.
Energy Report: The Fukushima disaster, protests in Australia over lifting a ban on uranium exploration, and a fire aboard a Russian nuclear submarine in December indicate negative sentiment toward nuclear power. Why would investors risk exposure to a commodity that is so price sensitive to events like these?
Mark Lackey: The fundamentals of the uranium sector still look good. Worldwide, 1.3 billion (B) people lack electricity. In China, load growth for electricity is 10% annually; in India, 8%. That growth is unlikely to diminish any time soon. Nuclear power has to be considered as an option to meet demand.
I would remind you the nuclear industry did not end after the accident in Fukushima, Japan. Yes, there was a reaction; plants were shutdown in Japan and Germany. Subsequently, some startup of those same plants is planned. Furthermore, construction on 65 plants around the world did not stop.
There have been more inspections in China, India and France and that reassures people that everything has been built to specifications.
As many as 200 new nuclear plants are being planned in Asia, Brazil and even Saudi Arabia. The week of Feb. 13, China announced its long-term goal to increase installed nuclear capability by an additional 30%. Their original goal was 65 million (M) kilowatts (KW) by 2020; now it is 80M KW. Clearly, the country does not plan to stop or change direction.
TER: What impact did the U.S. Nuclear Regulatory Commission’s approval of construction of two nuclear reactors in the state of Georgia have on the uranium sector?
ML: It did not move the spot price, but the industry views this as a positive. Recent growth has been largely in Asia and South America. We will have to wait and see if this leads to more positive announcements in the U.S.
TER: Do you expect more licenses to be granted in the U.S.?
ML: Even though U.S. load growth will grow only in the 1% range, the country will need additional capacity in the next 10 to 15 years. It is very hard to build coal plants in the U.S. and the hydroelectric sites are pretty well maxed out. The other option is to burn natural gas. All of this puts nuclear power back in vogue.
TER: Among commodities, is uranium the most sensitive to world events or would you put gold in that category as well?
ML: I would put uranium up there. But it is not the only commodity that is event driven. Gold really reacts to events. You can see that in its volatility related to events in Europe. Silver is also event-driven because it tends to follow the gold market. Base metals are not all that event-driven, although oil has been lately.
TER: In 2010, the nuclear industry used 152 million pounds (Mlb) of uranium. Yet uranium suppliers only produced a total of about 118 Mlb. The shortfall was covered by reprocessing nuclear weapons. When will those finite sources run out?
ML: Russia will stop exporting the highly enriched uranium it has been processing from its nuclear warheads by 2013. Unless a new source is found, a potential shortfall could happen over the next two or three years.
TER: It is now almost a year since Fukushima. The spot price for uranium is now $52 a pound. Has that spot price resumed an upward push?
ML: No, our 2011 forecast would have been correct if the earthquake and tsunami had not happened. The price fell from $72 to the $40s and has remained at $52 the for last six months.
The decision to shut down some plants in Germany and Japan took away short-term demand. During the recent cold weather, Germany restarted a few of those plants, and the Japanese are looking at proposals to restart some as well. As that trend continues and new plants are commissioned, demand should rise.
TER: Just about a year ago, the spot price and the long-term price for uranium crossed paths on the charts. Ever since, they have diverged. When do you think those two lines will meet up again?
ML: Interestingly enough, most uranium sells in the long-term market. The equities all follow the short-term price, partly because that is what the market follows. In the next couple of years, I expect spot prices and long-term prices to rise. We anticipate they will be trading in the same relative price range by 2014.
TER: What range do you expect the spot price to trade in this year?
For the rest of this interview, please go to The Energy Report website: http://www.theenergyreport.com/pub/na/12771