Only a short time ago it seems (five or six years actually) the uranium price was riding high, uranium explorers were springing up everywhere and uranium producer and explorer shares were among the strongest in the mining sector.  The spot price soared to close on $140/lb in 2007, but then collapsed to the $40 or so level by early 2009 before making something of a recovery up to around $70/lb by early 2011, and seemed to be progressing upwards again with all kinds of predictions of huge growth in nuclear power leading to shortages ahead.  Investors were beginning to climb in again – and then came Fukushima!

The earthquake and subsequent tsunami of March 11th 2011 resulted in a series of equipment failures, nuclear meltdowns and releases of radioactive materials.  Wikipedia describes it as the largest nuclear disaster since Chernobyl in 1986 and only the second disaster (along with Chernobyl) to measure Level 7 on the International Nuclear Event Scale.  

Indeed, much of the area around the plant remains uninhabitable due to high radioactivity levels, even now.  However there have so far been no reported deaths due to radiation as a result, although long-term effects may change this.  By way of comparison, it is thought that only 68 deaths have occurred to date as a direct result of the nuclear accident at Chernobyl, but again some longer term factors could raise this figure.  In both cases population relocation will have been devastating for those who called the area around the respective plants home.

Fukushima resulted in knee-jerk reactions in a number of countries that seemed to put the whole future of nuclear power at risk.  Japan shut down all its other nuclear reactors, Germany and Switzerland resolved to completely phase out nuclear power, and any decisions to go ahead with new nuclear power stations almost anywhere will have been affected by inherent fears of further nuclear disasters on the scale of Chernobyl and Fukushima.

Indeed it took many years for the political fallout from Chernobyl, and Three Mile Island before that, to dissipate and for the nuclear industry to begin to build again, but it had done so and pre-Fukushima it really did seem poised to take off with major plans for new nuclear power plants all around the world.

But the world is increasingly power hungry and fuels like coal, and perhaps to a lesser extent oil, generate excessive atmospheric pollution and are seen to be contributive to global warming, while non-polluting power generation systems like wind farms and solar energy cannot really provide enough new energy at anything like a reasonable cost and we are already starting to see a beginning of a return to nuclear power plant construction, but perhaps more caution being applied to power plant location in particular – the technology itself is seen as highly robust.

While Germany and Switzerland remain committed to phasing out nuclear energy altogether, they are in danger of being unable to meet energy needs as plants are gradually phased out, while Japan, which has already seen rolling blackouts due to the shutdown of its nuclear plants, has already decided to restart some of them, while the new government there is perhaps more favourably inclined to resurrect the other shutdown facilities – and even perhaps build new ones.

But, looking ahead it is China that, as with almost any other metal and mineral, is likely to be the key growth market which will drive the uranium supply sector into serious production deficit.  In an effort to both service its huge energy needs, while at the same time reduce the horrific atmospheric pollution which covers many of its cities in an almost impenetrable gloom, it has plans to build up to 100 or more nuclear power plants over the next 20 years.  While immediately post-Fukushima it put these plans on hold for further examination it has since decided to go ahead with expanding its nuclear power capability.

There are a number of other countries looking at developing nuclear power programmes, with some major plant building envisaged.  India, Korea, the Middle East, Russia to name just some.  But with uranium already in a supply deficit situation according to the World Nuclear Association (WNA), and low prices meaning that many new production and expansion projects have been shelved, and exploration virtually disappeared, then it is hard to see where the uranium is going to come from to meet expanding demand.

Overall the WNA notes that there are currently 435 nuclear reactors connected into national grids (although this includes Japan’s 50 power plants), a further 67 are under construction, 164 on order or expected to come on stream in 8-10 years, and 317 proposed (expected to be approved and on stream within around 15 years.

The WNA puts 2013 uranium demand at a little over 66,500 tonnes of uranium, while current mine output is around 55,000 tonnes, but the shortfall is largely met from secondary sources of which the most important is the recycling of highly enriched weapons grade uranium from Former Soviet Union nuclear weapons stockpiles.

An August 2011 updated paper from the WNA noted: With 60 reactors being built around the world today, another 150 or more planned to come online during the next 10 years, and over two hundred further back in the pipeline, the global nuclear industry is clearly going forward strongly. Responses to the Fukushima accident, notably in Europe, do not change this overall picture. Countries with established programmes are seeking to replace old reactors as well as expand capacity, and an additional 25 countries are either considering or have already decided to make nuclear energy part of their power generation capacity. However, most (over 80%) of the expansion in this century is likely to be in countries already using nuclear power.

But with new mine production somewhat curtailed by the low spot prices – once the nuclear weapon decommissioning programme ends (due this year and it is not expected to be extended), uranium could start moving into serious deficit, a deficit which will increase yearly throughout the remainder of the decade and perhaps beyond.  Ultimately the increasing deficit will lead to spot price rises, perhaps substantial, and the economics of building new mines will become more attractive again.  There is no shortage of uranium in the earth’s crust, but economically viable concentrations are less common.

Thus, uranium miners and explorers may well be at the dawn of a new more profitable life.  One can perhaps expect to see gradual, and then accelerating, increases.  Currently the uranium spot price is sitting at around a 5 year low at $40.50/lb.  $40/lb does seem to be the low resistance point – a level where the price has bounced back up from on several occasions.  Now could be an opportune time to look at uranium stocks and there is at least the possibility of a serious upkick once the supply deficit really starts to take hold.