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The peripatetic
Mercenary Geologist Mickey Fulp explains that even if all under-construction
and planned nuclear facilities are suspended, not enough uranium is being
mined currently to supply ongoing demand. In this exclusive interview with The Energy Report, Mickey reveals a number
of companies poised to benefit from this long-term fundamental upside.
The Energy Report: What impact will
the damage to the Fukushima nuclear facility in Japan have on the spot price
and/or market valuations for uranium companies?
Mickey Fulp: Currently, it is
unknown what the fallout (pun intended) from this nuclear incident
will be both economically and geopolitically. At the very minimum, Japan has
lost a significant portion of the energy output from one facility. Eleven
nuclear reactors out of the country's 55 are shut down currently and at least
two will never produce electricity again. That energy capacity will need to
be replaced by other electrical sources.
Globally, this is the third nuclear plant incident in more than 30
years. The first was Three Mile Island. While nothing of real consequence
happened, it did change the perception of nuclear safety. The second incident
was Chernobyl where the reactor melted down, resulting in serious
environmental and health impacts. That reactor was an obsolete and inadequate
design with no containment vessel and was never used in the West. Although
Japan's Fukushima plant was using some older technology and we still don't
know what the full damage will be, it will not be anything near the Chernobyl
disaster.
Anti-nuclear organizations will be emboldened by this situation while
pro-nuclear concerns likely will remain so. Looking forward, who knows what
the impact will be? Will we see some older reactors come offline? Probably,
however, most countries can't afford to shut them down because electrical
demand will not decrease. Will we see some reactors in the process of
construction stop construction? Perhaps. Will we see nuclear facilities that
are planned but not yet started be delayed or waylaid? That seems likely.
TER: If reactors under construction or planned
are postponed or abandoned, how much will that impact the demand for uranium?
Could we see a uranium price crash?
MF: It wouldn't surprise me if we saw a drop
in the spot uranium price and stocks. I don't think it will diminish much
uranium demand in the short or midterm, because the fundamentals haven't
really changed. There is still a shortage of uranium. We haven't mined enough
uranium for 25 years and our current mine supply deficit is 30% of total
yearly demand. We've been operating on depleting private and sovereign
stockpiles and the conversion of Russian warheads to nuclear fuel rods. The
Russian program ends in 2013 and stockpiles are getting depleted to low
levels. So, even if all the reactors under construction, planned and
proposed, are scuttled, we'd still need more uranium for the reactors that
are online currently than we are presently mining.
TER: Do you see any scenario in which the Japan
incident will impact uranium prices significantly?
MF: We saw spot prices crater to a low of
$49/lb. on March 16 before recovering to $60/lb. on March 21. There will be a
price impact but, as for significant damage to the nuclear energy industry,
it is way too early to tell. Frankly, I do not know. I do know that current
reactors need to replenish stockpiles of uranium periodically and that we
don't mine enough at this time. Demand, most likely, will still be there over
the short, mid and long term.
TER: Will other energy commodities increase due
to this nuclear scare? Specifically, I was thinking about natural gas, which
is in abundance and really cheap.
MF: We have a mixed bag of energy prices now
and lots of volatility. As the uranium stocks sold off, solar, wind and
natural gas stocks took off briefly before reality set in. Solar cannot
provide baseload electricity because of night and wind cannot because it does
not blow constantly at the same velocity 24 hours a day, 7 days a week for
365 days a year. We don't have the natural gas transportation, storage and
filling infrastructure to convert electrical plants or vehicles quickly.
Coal has been the real winner in 2011 with supply disruptions causing
rapid rises in price, but it is our dirtiest form of energy and a major
pollutant worldwide. Oil prices are high at over $100 a barrel and major
volatility is likely to continue due to Middle East turmoil. We also have the
ecofascists who preach "clean and green," but then launch lawsuits
to stop solar plants in the Mojave Desert and offshore wind farms on the East
Coast. What do the NIMBYs (not in my backyard) want, all of us to just freeze
in the dark?
In my opinion, we desperately need a viable domestic uranium industry
as we strive to reach energy independence in the U.S. I trust that the
American people and its politicians and policymakers will continue to ensure
that all forms of energy, including nuclear power, play a part in this mix.
TER: You have written that your two favorite
uranium companies are Strathmore Minerals Corp. (TSX:STM; OTCQX:STHJF) and Mawson Resources Ltd. (TSX:MAW;
OTCPK:MWSNF; Fkft:MRY). Let's talk about them. In your December Musing, "The Mercenary Geologist's Uranium Review
Q410," you felt that Strathmore Minerals was the most-undervalued
uranium developer listed on the North American exchange. You wrote,
"Rest assured, given the current time and price that I am not selling."
The stock chart shows it's been jumping around a bit since December. Can you
give us an update?
MF: Strathmore is continuing to work toward a
feasibility study at Roca Honda in New Mexico and a mine permit application
in Gas Hills, Wyoming. The company likely will monetize some of its other
seven non-core development assets in the next 12 months. I still expect the
consolidation of uranium developers in New Mexico within the next year or
two. A private European investment fund divested of its Strathmore holdings
in early 2011, and that depressed the stock price. It took a while for the
company to chew through this, and then it went as low as $0.63 in the
four-day selling frenzy after the Fukushima incident. STM has recovered
nicely in recent trading sessions and is now trading at about $0.75.
TER: You mentioned that your other favorite
company in the uranium sector is Mawson Resources. You alerted readers about
Mawson on November 17 and those who acted on your alert got more than a double
in four days from $1 to over $2. What's in store for Mawson in 2011?
MF: Mawson had a phenomenally quick double
based on project news, my BNN appearance, a Mercenary
Musing alert and the San Francisco Hard Assets show that allowed the company
to show off its wares. After the initial run-up to $2.68 and profit taking
that took it back to about $2, it ranged between $1.75 and $2.25 before
dropping to $1.16 in the aftermath of the Japan disaster. Mawson recently
announced final 2010 surface sample results from the Rompas project in
northern Finland. The results are impressive, with bonanza-grade gold and
uranium values. The stock moved when the company received permits for shallow
drilling and is once again in the $2.10 range. Rompas could be a major new
discovery or perhaps just a curious surface anomaly; more likely, it will be
something in between. Now, we will wait for results from the drilling and
what the old truth tool will tell.
TER: Do you have any new ideas in uranium
space?
MF: Of course, I am always looking for
beaten-up stocks that have strong fundamentals and solid underlying value. My
recent favorite is Uranium Energy Corp (NYSE.A:UEC), a new in-situ recovery (ISR) uranium producer in
South Texas. Although still early on, its first quarter of production came in
with cash costs of $18/lb. Given uranium's current spot price of $60, it
looks like a potential winner to me. It is the one stock I am accumulating on
sector weakness for long-term investment and anticipate a plan to grow this
junior producer into something bigger in the near future.
TER: In your last Mercenary
Musing, which is available to your free email subscribers, you wrote,
"Putting in stink bids and patiently accumulating as the market rises
and falls is always a legitimate strategy." In general, what constitutes
a "stink" bid—20% from the recent price, 25% off the price?
MF: To me, a stink bid is a bid lower than the
stock's normal or recent range that implies a lack of interest, a market
correction, some sort of selloff, a dormant period with no news or, perhaps,
breaking below the 50- or 200-day moving average. Rest assured, I am now closely watching the uranium space for
contrarian opportunities.
Michael S. "Mickey" Fulp is the author of The Mercenary Geologist. He is a certified professional geologist
with a B.Sc. in earth sciences with honors from the University of Tulsa and
M.Sc. in geology from the University of New Mexico. Mickey has more than 30
years experience as an exploration geologist searching for economic deposits
of base and precious metals, industrial minerals, coal, uranium, oil and gas
and water in North and South America, Europe and Asia. Mickey has worked for
junior explorers, major mining companies, private companies and investors as
a consulting economic geologist for the past 23 years, specializing in
geological mapping, property evaluation and business development.
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DISCLOSURE:
1) Karen Roche of The Energy Report conducted this interview.
She personally and/or her family own shares of the following companies
mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of
The Energy Report: Strathmore Minerals and Mawson Resources.
3) Mickey Fulp: I personally own shares of the following companies
mentioned in this interview: Strathmore, Mawson and Uranium Energy. I
personally am paid by the following companies mentioned in this interview:
Strathmore Minerals and Mawson Resources.
The Energy
Report
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