14/05/2009 - 00:00

Sprint’s on for nuke power generation

14/05/2009 - 00:00

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THERE is no doubt that nuclear power generation is resurgent around the world.

Sprint’s on for nuke power generation

THERE is no doubt that nuclear power generation is resurgent around the world. After a 10 to 15-year hiatus, mostly caused by the power industry's reaction to Russia's appalling safety record at the Chernobyl plant, several new and safer projects are under construction.

Presently, there are 42 reactors under construction and 110 power projects ordered or planned around the globe. At least 37 new power plants are either in construction or planned in China, 16 in India, 15 in Japan, 19 in Russia, 12 in the US, eight in South Korea and five in Canada.

Clearly, much of the action is in our region. When completed, these plants will lift global nuclear power generation capacity by 48 per cent to around 484 gigawatts (GWe). On top of this, there is estimated to be a further 249GWe of generation capacity on the drawing boards. In total, these projects will raise annual consumption of uranium by about 32,000 tonnes a year of uranium oxide (U3O8) by about 2025.

Demand for uranium as a fuel is sure to rise as nations such as China, India, Japan and Russia crank up their power plant construction efforts in the medium term.

In the longer term there are questions over what technology will be used and how many of those power plants currently on the order books will come into the picture, and over what time frame.

The UK is now reinvigorating its nuclear power industry, along with many other nations, and individual plants are getting bigger. Germany has cancelled its policy of closing down its nuclear power industry, realising that without it there is no way it can meet its greenhouse gas emissions targets.

In the distant future, a move towards 'fast' reactor technology would enable the use of 97 per cent of the available energy content of nuclear fuel, producing lower volumes of high level spent fuel than present 'slow' reactors, which only recover 5 per cent of available energy content from their fuel.

Once this new reactor technology is commercialised, all of today's spent fuel could become feed material for this new breed of highly efficient and zero emission power generation plants.

Even if fast reactors were to become the industry standard by 2025, the legacy stock of older style 'slow' reactors would continue to consume 70-80,000t/year of uranium oxide, while producing spent fuel for repossessing and use in the newer, 'fast' reactors.

Under this system, nuclear plants would generate 19 times more power from the same tonnage of fuel, resulting in much lower volumes of final waste product per unit of power produced. To some, this might look like almost limitless energy for the next millennia. All that is required is a commercial solution to the use of liquid sodium as a heat transfer fluid in this style of plant.

Mine production of uranium has risen, but will need to go much higher to support the ambitions of power generators into the next decade.

Consumption of U3O8 was 66,200t in 2008 and is set to rise to 74,200t in 2013, growing at 2.3 per cent annually.

Inventories of uranium oxide are being run down, while a lower volume of highly enriched material is making its way onto the power market.

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Over the next decade, a gap of between 20,000 and 25,000t/year of uranium oxide between mined and consumed product will need to be met from expanding primary mine supply. This has been made more difficult as major mine projects, such as Cigar Lake and Olympic Dam expansion, have been delayed.

Spot prices for U3O8 recently fell to $US40/pound and have recovered to $US45/lb, while contract prices have recently retreated to $US65/lb. At a price of $US70/lb, most local companies have ore bodies with insitu values of more than $100 per tonne and up to $600/t, ensuring viable operations.

The market currently values uranium producers and developers at a market capitalisation of between 1 per cent and 20 per cent of the in situ value of their uranium oxide resources.

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Among the local developers, Alliance Resources, with its high-grade resource and low operating cost outlook, is ranked highly, with a market capitalisation of over $20/lb of uranium oxide in resources. The company's diverse portfolio boosts its market capitalisation beyond that which it would attract purely from uranium.

Producer Paladin is also highly rated since it has good exploration upside and its mineral resources are also relatively high grade.

Extract Resources is outlining large, but lower-grade resources of oxide mineralisation in Namibia, but the company is rated highly because it is a takeover target from its major shareholder, Rio Tinto, which operates the neighbouring and hungry Rossing mine.

ERA appears to be rated below the 10 per cent of insitu value rule of thumb, largely because much of its high-grade resource is bound up with the Jabiluka deposit, which is unlikely to be mined for several years, if at all.

Curnamona Energy will be Australia's next uranium producer, even if it is only from a trial insitu leach project in South Australia. Once the company demonstrates the low cost nature of its production technique, Briefcase calculates that resources of over 3,000t of U3O8 should be booked. Energy & Minerals is sitting on a substantial, polymetallic deposit in WA's South West, with mineral Resources of about 24,500t of U3O8. Development is still three to four years away and funding is uncertain. The company's cumbersome capital structure keeps investors away and so it trades at a discount to fair value.

Bannerman's low-grade mineralisation and political concerns keep its rating low, while Marathon has battled environmental issues after failing to dispose of drill tailings in an appropriate manner, but looks very cheap on the value metrics.

Meanwhile, the federal government's flip-flop on carbon trading is having a negative impact on companies such as CO2 Ltd (COZ) and UXC Ltd, which have positioned themselves to benefit from the creation of carbon credits. CO2's business model of providing carbon offsets has come in for some scrutiny. Farmers, who have signed up for long-life mallee tree plantations on their farm find that they are effectively reducing the size of the land that they can sell unencumbered. Apparently the paperwork is a bit deficient and the whole scheme looks fragile to Briefcase.

On the other hand, UXC is building a business by creating renewable energy certificates (RECs), which it can sell to utilities to offset their emissions and assist them in meeting renewable energy targets. UXC installs solar hot water systems, insulation and water saving devices to produce these RECs. Delay in establishing trade in REC's via a cap and trade system will affect all businesses set up to trade in these units and may negatively impact on their price in the short term.

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Even though China is making huge steps to reduce its greenhouse gas emissions, its annual coal consumption will increase by 600 million tonnes to 3.4 billion tonnes a year by 2020. So it is sad to report that our meagre contribution to slowing the rate at which atmospheric CO2 increases, will have zero impact on the future of our Barrier Reef system. But I guess we have to start somewhere.

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n Peter Strachan is the author of subscription-based analyst brief StockAnalysis. Further information can be found at Stockanalysis.com.au.

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