We thought by now we’d heard it all. But the quote which follows, given to us in a tape-recorded telephone interview by the man who obtains nuclear fuel for the largest nuclear utility in the United States, surprised even us.
“From the point of view of today’s price, they did us a favor by sending a really strong signal to the production-side community that it was time to get out there and start looking to get stuff back into production,” Exelon Corp nuclear fuels vice president James Malone told StockInterview. Malone was referring to the uranium speculators and financial community, who have driven long-term uranium contracts to US$85/pound and the weekly spot price to $125/pound. “It may not have happened as quickly without this strong signal.”
And then we talked about the widening spread between the weekly spot and long-term uranium price.
“I think the sellers have the perception that prices should be higher in the spot market, but obviously the buyers aren’t sharing that perception right now,” Malone told us. Hence the pricing stalemate. “There isn’t any long-term activity to base a change in that price. It’s been flat for several weeks.”
Although the spot uranium price continues to set new records, many utilities are comfortable with the amount of U3O8 equivalent they have stockpiled. In his previous media interviews, Malone gave the impression that Exelon did not lack for the nuclear fuel to power the company’s 17 reactors, which produce about 20 percent of the U.S. nuclear electricity.
We asked if this were true. “That’s correct,” he responded. Others such as Entergy and FPL may not be as fortunate. The rumored scramble by at least three utilities for uranium equivalent could be one driver for the higher spot price.
And this brought us back to the uranium speculators. In late April, Malone wrote a guest commentary, which appeared in Fuel Cycle Week. In that issue Malone contended uranium speculators were driving up the spot price of uranium to make their investments in mining stocks more valuable.
We confirmed he continued to believe this. “I am not knocking the guys who are in it for financial gain. I can’t blame them for wanting to make money, but you have to understand what it is they are doing,” he said.
Malone cited the strong correlation between the stocks of junior mining companies and the uranium price. “The R squared is somewhere around 0.95,” he explained. R-square is a statistical 텍사스홀덤 coefficient of determination, which provides information about the validity of a model. This compares with TradeTech’s evaluation of the relationship to uranium stock share prices to the uranium price, which Gene Clark explained in an interview about a year ago.
Again he surprised us, having taken the time to meticulously study the ‘sell-side’ of the uranium market. But Malone admitted, “We didn’t look at all 450 of them.”
And why should he? Malone agreed with our premise that more than 90 percent of the ‘uranium’ companies are likely to disintegrate at some point. “Some of the smaller folks that are out there, really shouldn’t be there because they are not going to make it,” he said. “The other folks are going to fill the gap so that we’ll get a last marginal pound in at a reasonable price.”
When would we reach this ‘reasonable’ price? “It depends upon how some things like Cigar Lake come back to life because that’s such a large component of production,” Malone said. “Whether Shea Creek comes in during that timeframe – which will pretty much make a big dent – there’s several smaller ones. There’s a raft of properties people want to bring back into production. They may be able to only produce one or two million pounds a year.”
He agreed with our evaluation that many of those projections are falling short, especially on the smaller projects. But what about BHP Billiton’s Olympic Dam? “I think Olympic Dam is so big that they can’t rush it,” he said. After we pointed out this could become the biggest open crater on earth, we both broke into laughter. “I think they’ve got to be reasonable in their approach to it,” he added.
We speculated about when hedge funds might begin selling uranium. Over the next few weeks, both Mestena Uranium LLC and an unnamed hedge fund plan to offer the largest amount of spot U3O8 and equivalent into the market in any single instance since last September. Dr. Robert Rich, a director of Yellowcake Mining, cautioned of a uranium ‘price adjustment’ at an unspecified time. “Bob and I used to share an office together when we were young and worked at Yankee Atomic,” Malone said.
He agrees there could be an adjustment. “It could be a two-phase thing. Some of the hedge funds may exit and just move on. Others may hang on and the market could stay above where it ought to be because it’s not yet fully rationalized with respect to the balance between supply and demand.” He added, “But, you could see some kind of adjustment that would bring it down a bit, and then take a longer time for it to reach a true rational equilibrium level.”
Malone’s conclusion? “The market fundamentals, if you simply look at the macro situation of supply and demand, it simply doesn’t support those kinds of numbers, especially in that time frame,” he said. “It is really a puzzle why some people have such a strong bullish position.”