James Passin: Rising Commodity Prices to Trigger Renaissance for Nuclear and Gold

http://www.uraniumseek.com/news/Uran...

TGR: You liked uranium early this year when we talked with you. You’d been investing in uranium stocks since 2001, when uranium was trading at a record low of $7 a pound, and said—at the time—that powerful supply-and-demand fundamentals would support a higher uranium price. You also talked about the inevitability of the nuclear renaissance. You were really big on uranium and, in fact, at that point you’d unloaded a bunch of uranium at a really high price. Now that the commodities are all shaking out, do you still see uranium as a potential good investment and, if so, why?

JP: It’s very interesting that uranium, which led the energy complex on the way down, is now starting to rebound. The uranium price certainly appears to have bottomed. A lot of the uranium mines, which were for years touted as an important source of new production, are proving to be total disappointments. The billions of dollars raised by so-called uranium companies during the uranium bubble will result in very few additional pounds of production.

TGR: What do you mean by “so-called” uranium companies?

JP: There are probably over 800 uranium companies. If you were to look through the ranks of these companies, very few will ever produce uranium over their corporate life. Most of them are lifestyle companies for the management and promoters and speculative vehicles for investors. But unfortunately for the consumers, they will not be real producers of uranium. The world is still consuming more uranium than it’s producing. The U.S. still gets 40% of its nuclear fuel not from uranium mines, but from Russian warheads under an agreement expiring in 2011.

Given the current state of relations between Russia and the United States, I don’t think we’re likely to see that agreement renewed or extended. Therefore, the United States is going to have to find some alternative source for uranium, which I think means investing in uranium mining projects.

If the enriched uranium from Russia stops being available after 2011, there will be quite a price shock. The utilities in the United States are going to begin to accumulate inventory in front of 2011, which put a bid under the uranium price.

One of the unanticipated consequences of the credit crisis is a deceleration of the nuclear renaissance. Nuclear reactor construction requires large amounts of debt and unless you’re the U.S. Treasury issuing zero-coupon notes, no one seems to be willing to lend anything. Even though nuclear reactors are fairly low risk compared to other large-scale industrial projects, the absence of credit will inevitably slow down nuclear reactor construction.

TGR: It’s interesting that a year ago, everyone claimed the whole reason behind rapid uranium price increases was the fact that there were so many nuclear facilities on the books for China, India, and even the U.S. Given that financial crises may delay, postpone or eliminate many of these projects, can we expect an increase in uranium price just fulfilling requirements for current reactors? Or do we need new ones to justify an increase?

JP: There’s still quite a significant shortfall between production from mines and consumption by nuclear power plants.

Another factor will be disappointment in terms of the lack of new production. Most of the speculators have already liquidated. It’s unlikely that the uranium price will decline significantly on any kind of sustained basis.

To increase the price significantly, though, we need a wave of nuclear reactor construction. With natural gas and coal prices checking back, the economic case for nuclear becomes less clear. However, the world politically has decided that it needs to diversify away from oil, away from hydrocarbons. Obama’s advisors have made it clear that he is very interested in achieving mandatory carbon emission reductions. Any kind of realistic plan involving reduced carbon output in the United States is going to require embracing nuclear power aggressively. My feeling is that Obama will enthusiastically embrace nuclear power.

TGR: Would you say you’re still bullish on the supply side of nuclear facilities, specifically nuclear construction? Or a little cautious?

JP: I don’t think the number of nuclear reactors built in the next 20 years will be any lower than we’re forecasting, but the initial rate of construction will be slower than anticipated.

TGR: You talked before about the importance of beryllium for certain critical components inside nuclear reactors, because of a combination of physical properties—lightweight, strong, a high melting point, efficiency as a heat conductor, resistance to corrosion and a tendency to not absorb radiation. It's lightweight, strong, and resistant to corrosion. Could you update us on the outlook for beryllium now?

JP: One of the most interesting potential applications of beryllium is in mixed oxide fuel technology. Purdue University is a world leader in mixed uranium oxide fuel research. A small company has licensed uranium-beryllium mix oxide fuel technology from Purdue University and is now collaborating with Purdue to commercialize the technology. Beryllium-uranium mixed oxide fuel, which could work in existing nuclear reactors, has the potential to dramatically reduce the need for uranium and also to improve the safety profile of nuclear reactors. There’s no substitute because of the unique thermal characteristics of beryllium.

This technology has the potential to transform the economics and political acceptability of nuclear power. Aside from this potential application, beryllium is used in certain critical nuclear reactor components and therefore an interesting play on nuclear power plant construction. The technology could help ease the uranium shortage. There are some efforts required to complete research, but I have a strong degree of confidence in its commercial prospects.

TGR: Any other emerging nuclear technologies that intrigue you?

JP: Yes, and it involves depleted uranium. The nuclear fuel cycle creates two environmental problems: depleted uranium, which is the byproduct of uranium enrichment, and spent fuel rods. The nuclear industry has been quite clever at recycling spent fuel rods. So the last problem is depleted uranium.

TGR: What’s the issue with depleted uranium?

JP: Some 90% of the output of uranium enrichment is actually waste material called depleted uranium hexafluoride. It’s very toxic, horrible stuff with—to date—no economic value. And the world’s producing 250 million pounds of depleted uranium every year as a byproduct of the uranium enrichment. As new uranium enrichment plants are built to handle the increasing demand for nuclear fuel, that number is going to increase dramatically and there are vast stockpiles already. The Department of Energy has almost 2 billion pounds of depleted uranium in the United States and there are similar stockpiles in Europe and Russia.

The good news is that a U.S. company has developed a fluorine extraction process. This is a potential means of harvesting the fluorine atoms in depleted uranium and producing fluorine gases and other valuable fluorine products out of depleted uranium. That has the effect of actually eliminating depleted uranium, and so it solves its major environmental issue in the nuclear fuel cycle. It also extracts potentially billions of dollars of value from these trapped fluorine atoms.

TGR: It sounds like an amazing technology process. Will it gain traction with Obama focusing on more nuclear facilities?

JP: Any plans to have nuclear be the means through which to meet carbon requirements without really damaging the U.S. economy will have to deal with the environmental side effects of the nuclear fuel cycle. Eliminating depleted uranium would be an obvious and clear step toward improving the political acceptability of nuclear power.