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The Reality of the Uranium Market Treva Klingbiel, President MINExpo International 2012
The Reality of the Uranium Market
Treva Klingbiel, PresidentMINExpo International 2012
Best known foruranium marketprice reporting
(since August 1968)
TradeTech Website
TradeTech’s Business ActivitiesSpecializing in the front-end of the nuclear fuel cycle
• Market Analysis and Daily, Weekly and Monthly Price indicators.
• TradeTech’s Monthly Exchange Value is longest running pricesseries – in publication since 1968
• Quarterly Market Study : Projections of Supply/Demand/Price
• Specialized Consulting (e.g., procurement and contracting,competitor analysis)
The leading independent source ofuranium market information
The Four Realities Of The Uranium Market
• Fuel Cycle Dictates Buying Behavior
• Spot Market
• Long Term Market
• Market Fundamentals
o Has been described as a very immaturemarket, and is definitely a boutique market
o No open exchange like London MetalsExchange
o Market reporters, like TradeTech, publishprice indicators
How Does the Uranium Market Work?
Uranium Processing
“Enriched UF6”
“Natural” UF6 (uranium hexafluoride)
U3O8 or Yellow Cake
Uranium has to be further processedto become nuclear fuel.
Reality 1
The Nature of the Nuclear Fuel Cycle DictatesThat Utilities Procure Uranium Far in Advance of
Actual Loading into Reactor
Primary Supply= 75%
SecondarySupply = 25%2011
Spot Market= 15%
Long-TermMarket = 85% 68%
7%
17%
8%
Current Uranium Supply Sources and Markets
The Dynamic Pricing ModelAn econometric approach to spot price forecasting
Reality 2Spot Prices are not linked to Production Costs
Changing Spot Market (Buyer Breakdown)
Financial1% Producer
4%
Utility90%
Trader5% Financial
26%
Producer25%Utility
23%
Trader26%
2000 Current
0
5
10
15
20
25
30
35
40
45
50
Buyer Seller Buyer Seller Buyer Seller Buyer Seller Buyer Seller
Million Pounds U3O8
Investor Processor
Producer Trader
Utility
2008 2009
2010 2011
© 2012 TradeTech
2012
Spot Volume By Buyer/Seller Type
Investors/speculators were net sellers in 2008, for thefirst time
The Spot Market Characteristics
• More perception driven than 10 years ago.
• Some correlation to outside markets.
• Although still not efficient, increased liquidity has led toincreased potential for volatility.
• Less driven by clearing price fundamentals.
The Dynamic Pricing Model• Based on 3 variables that TradeTech has publishedsince 1968.
Active Demand, Active Supply and Spot Price.
• The historic correlation is defined by an algorithm.
• TradeTech utilizes its awareness of the market to forecastAS and AD over the forward 24 months, and future pricesare calculated.
TradeTech’s neutrality aids access to information.
The Historic AS/AD/ Price Relationship
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160
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US Dollars Per Pound U3O8Million Pounds U3O8
Active Demand Active Supply Exchange Value
Active Demand finally outstripsActive Supply
Credit crisis sparksstock liquidation
Intermediaries returnto the market sensing strong
fundamentals prior to Fukushima
DPM Characteristics
• 2 years of historic data is used to forecast 2 years forward.
• The model is continually optimised to generate the closestpossible correlation. For example:
i) It calculates the relative sensitivity to changes in demandversus changes in supply.
ii) A quadratic function exists to provide a multiplier effect toreflect market exuberance when price movement is marked.
iii) Price resistance levels are also built in.
Historic Spot Price Projection (DPM Q1 2011)
30
40
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80
90
0.0
1.0
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Active Demand
Active Supply
Spot Price
Million Pounds U3O8 US$ per Pound U3O8
Fukushima Impact~$15-20/lb
Market exuberancewas expected to continue
The Forward Availability ModelForecasting Long Term Prices through to 2025
Reality 3Projected Production is NOT Available for sale
Long Term Price Premium
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1996-1999 2000-2001 2002-2004 2005-2007 2008-2010 2011 to date
Simply adding 10% to a spot priceprojection is no longer relevant
The Classic Supply and Demand Balance
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Million Pounds U3O8
Total Demand
Low Cost Secondary Supply
Existing Production
New Production
Prime Contracting Period
Prime Contracting Period (PCoP)
The Reality – Year 1 FAM Profile (Illustration)
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Total Demand
Available Demand
Low Cost Secondary Supply
Existing Production
Million Pounds U3O8
SpotBalance/
Oversupply
Potential Supply Deficitin the PCoP
The Reality – Year 2 FAM Profile (Illustration)
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Potential Supply deficit in thePrime Contracting Period
Total Demand
Available Demand
Low Cost Secondary Supply
Existing Production
Million Pounds U3O8
The Reality – Year 3 FAM Profile (Illustration)
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Potential Supplydeficit/surplus in the
Prime Contracting Period?
Total Demand
Available Demand
Low Cost Secondary Supply
Existing Production
Million Pounds U3O8
FAM Characteristics
• The Long Term Price is largely defined by S&D in the PrimeContracting Period (PCoP) - defined as a six year periodbeginning 3 years forward (T+3 to T+9).
• TradeTech uses its awareness of contracting activity to tracksupply availability.
• A Forward Availability (FAM) Profile is generated for eachyear being forecast.
• Surplus/deficit is run against the TradeTech productioncost curve to generate a long term price forecast through to2025.
Reality 4Good Market Fundamentals
-20 0 20 40 60 80 100
GermanyBelgiumSweden
SwitzerlandUK
SpainPakistanArmeniaSlovakia
PolandMalasyia
IranIndonesia
BulgariaBelarus
NetherlandsArgentina
Czech RepublicRomaniaLithuania
TurkeyVietnam
South AfricaSaudi Arabia
CanadaBrazil
FinlandUkraineFranceTaiwan
UAEJapanKorea
USARussia
IndiaChina
GWe to be added from 2011-2025
© 2012 TradeTech
Largest regional growth area: Asia
China’s growthaccounts for over45% of the world’sNuclear CapacityGrowth by 2025
Nuclear Capacity Growth
Global Uranium Requirements (Q2 Projections)
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50
100
150
200
250
300Million Pounds U3O8
Stock Building
Other Asia, Africa
Japan
East & SE Asia (ex. Japan)
Russia
Non-EU Europe (ex. Russia)
France
European Union (ex. France)
USA
Americas (ex. USA)
2005 Expectations~1% pa growth
2012 Q2Expectations
~4.5% pa growth
2012 Japan Provisional Impact~4 % pa growth
0
10
20
30
40
50
60
70
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Million Pounds U3O8
US DOE Tails Stripping
TVA BLEU/US HEU
US DOE Sales
Western Underfeeding
Russian Supply
Russian HEU Feed
MOX/RepU
Secondary Supply (Q2 2012 Projections)
Russian HEUDeal Ending Soon
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50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Million Pounds U3O8
Call On Mine Production (Q2 Requirements less Secondary Supply)
Russian HEU Deal Ends
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150
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250
300
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Million Pounds U3O8
Total Existing Production
Secondary Supply
2012 Q2 Requirements
Supply & Demand (Inc. Existing Supply Only)
Current and Projected Uranium by Country
0 10 20 30 40 50 60 70
UZBEKISTAN
UNITED STATES
RUSSIA
OTHER
CANADA
AUSTRALIA
AFRICA
KAZAKHSTAN
Million Pounds U3O8
2020 2011
© 2012 TradeTech
Five Pivotal Projects(defined as large and low cost or with strategic value to the stakeholders)
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30
40
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60
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Million Pounds U3O8
ODM Expansion
Husab
Imouraren
Kazakh Growth
Cigar
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50
100
150
200
250
300
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Million Pounds U3O8
Total Existing Production
Secondary Supply
2012 Q2 Requirements
Supply & Demand (Inc. Existing Supply Only)
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50
100
150
200
250
300
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Million Pounds U3O8
Husab
Imouraren
Kazakh Growth
Cigar
Total Existing Production
Secondary Supply
2012 Q2 Requirements
Supply & Demand (Inc. Existing Supply & Pivotals Only)Q2 with ODM removed
High Risk OfSingle Project Failure
Market opensup post 2020
Conclusions 1:
•Reality 1: Tthe structure of the market is changing due to the participation of investorsand the financial community.
•Reality 2: Spot Price will not necessarily reflect production cost/clearing costfundamentals.
• Reality 3: Long Term Prices more clearly linked to production costs AND production isnot currently marketable.
They can be linked, both by arbitrage between the markets and psychologically.
• TradeTech has developed 2 separate models to reflect the reality of theSpot and Long Term markets.
Conclusions 2:
Reality 4 : Firm Market Fundamentals...
• Nuclear power growth look robust.
• Reducing Secondary Supply supports COMP.
• Pivotal Projects have high importance, but will not be enough.
•Potential for a price rise by 2025 to $80 per pound U308.
Market developments and forecasts revised quarterly
Treva KlingbielPresident
TradeTech7887 E. Belleview Avenue, Suite 888
Englewood, Colorado, USADirect Phone +1 (303) 573-3520
www.uranium.info
