Developments in Nuclear Power
History
1951-1986: Growth
An experimental nuclear reactor in Idaho first produced electricity in 1951 and by 1954 the first nuclear powered electricity generator was supplying the then closed city of Obninsk in the USSR. In the same year a pressurised water reactor (PWR) powered the newly launched submarine USS Nautilus.
The establishment of the International Atomic Energy Authority in 1957 imposed operational and safety standards. Westinghouse designed the first fully commercial PWR and General Electric the first boiling water reactor (BWR), both commissioned in 1960. Nuclear power stations were widely constructed throughout the 1960’s and 1970’s.
The price of uranium oxide (yellowcake) rose to US$43 in 1979. A partial meltdown at the Three Mile Island nuclear station, Pennsylvania, in March 1979 was contained and released no radioactivity into the atmosphere.
1986-2005: Stagnation
An accident during the course of experiments being carried out at Chernobyl near Kiev in April 1986, where many people died or were affected, halted further development of new nuclear power stations.
For almost two decades thereafter, more than ample supplies of enriched uranium were available for the world’s nuclear power stations. Fuel was available from above-ground surplus stockpiles of the metal put aside by utilities and countries and enriched uranium in decommissioned bombs to reprocess. Since 1984, the existence of secondary supplies meant that the uranium mining industry had only had to provide the balance of world demand by primary mining.
Contract prices for supplies of “yellowcake” fell and exploration and mine development ground to a halt. By late 2002, the world spot price fell to a low of US$7.10 per pound. In 2004, world demand was 170 million pounds of uranium oxide but mined production was still only 104 million pounds. By 2005, just 10 mines produced two-thirds of the world’s uranium supply.
2005-present: Resurgence
Since 2005, the picture has changed dramatically. With above-ground stockpiles now heavily depleted and demand rising, increasing pressure on supply doubled the world spot price for uranium oxide to US$15.50 at the beginning of 2004 and again to US$32 a year later, reflecting a current and projected excess of world demand over supply.
The International Atomic Energy Agency forecasts a 47% rise in global production of nuclear power in the period 2003-2020.
Over 80% of uranium is sold on contract, using term prices as a base for the contract price. Alternatively, individual purchases for near-term delivery are made based on the spot price. Term prices in recent years have been stable at some US$90/95 per pound. It is probable that the spot and term prices may converge in forthcoming quarters.
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The current nuclear climate
According to the World Nuclear Association (WNA), as at 30 September 2008, there are some 439 nuclear power reactors operating in 30 countries plus Taiwan, with a combined capacity of about 370 GWe. In 2006 these provided 2658 billion kWh, about 16% of the world's electricity. Coal provides 39%, hydro 19%, and oil and gas circa 25%.
WNA data shows 36 additional nuclear reactors were being constructed in 11 countries, notably in China, South Korea, Japan and Russia. Globally, an additional 99 stations are planned and 232 proposed, with China accounting for 26 and 76 of these respectively.
France, with 59 reactors, produces 77% of its electricity from nuclear power. The USA, with 104 stations, has more than any other country, providing 19.4% of its electricity, with a further 12 planned and awaiting licencing and a further 20 proposed. The UK Government has altered its stance to embrace a new nuclear programme with initially 6 new reactors planned; Germany is considering halting its phase-out policy and even Italy, previously against nuclear power, is now considering it.
The International Atomic Energy Agency has significantly increased its projection of world nuclear generating capacity. It now anticipates at least 60 new plants in the next 15 years, making 430 GWe in place in 2020 - 130 GWe more than projected in 2000 and 16% more than actually operating in 2006.
The advantages of nuclear energy are zero emissions of greenhouse gases, economic operation and, up to now, high availability of uranium supply. Just one pound of uranium oxide will generate the same power as 31 barrels of oil or 10 tons of coal. A typical 1Megawatt nuclear power station uses 27 tonnes of uranium fuel per annum and emits no carbon pollution; a similar capacity coal-fired station uses some 3.3 million tonnes of coal and emits around 7 million tons of highly toxic pollution every year. Carbon taxes on coal stations are being proposed that will penalise their emissions.
The Kyoto Agreement and the subsequent research into global warming caused by atmospheric pollution have focused the world’s attention on the harm it is doing to the planet. Nuclear’s advantages, coupled with higher prices for coal, oil and gas, mean nuclear power is now enjoying greatly increased recognition in its ability to provide the clean energy the world needs for the future.
For all these reasons, Yellowcake’s Directors believe that the uranium market is in the early stages of a multi-year uptrend and will be seeking to capture the resultant growth for the benefit of the Company’s shareholders.