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Summary: Sprott Asset Management uranium expert Kevin Bambrough talked with us in regards to the “second leg” with the current uranium bull market. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.” He said several price projections may be inaccurate because “people are underestimating future demand.”

StockInterview: Price forecasts on spot uranium are widening. Some insiders have predicted uranium prices may drop back into the $30/pound range; others, such as yourself, continue to suggest $50/pound or higher. Any comments about the forecasts others are making?

Kevin Bambrough:
There are numerous folks forecasting uranium prices now. It’s important to think about their track record of forecasting costs. Look at the contracts that happen to be written by many companies within the business, over the last number of years. Anyone who had ceilings, or had signed fixed-priced contracts, has been punished. Very few folks inside the business predicted what has happened. Searching forward, I believe that in our view, the cost of production of current producers isn’t going to be as relevant as it has been in the past. It is going to be the much more marginal, a lot higher cost producers who will be setting the price.

StockInterview: Isn’t there a sense of false optimism that “projects inside the pipeline” will ensure an ongoing stream of uranium oxide for the nuclear fuel cycle?

Kevin Bambrough:
There are plenty of individuals looking at the supply situation going forward whilst underestimating future demand. They are extremely optimistic that mining projects are going to go as planned. We had latest news that Cigar Lake had a problem. There was a flood the. There’s a couple million pounds shortfall to most people’s models for at least two years. All because of one mine’s six month delay.

StockInterview: Would that have the kind of impact the McArthur flooding (Athabasca Basin, Cameco) had for the spot uranium price a few many years ago?

Kevin Bambrough:
I believe it could. It was forecast to go up to 18 million pounds of production. That would happen to be ten percent from the world’s current consumption. Cigar Lake would must ramp up over a three yr period, once it gets started. Now, there is really a six month delay. What if it’s delayed a year? That really changes the production profile for the next decade. There are many projects that could see delays. The mining enterprise is often full of delays. Remember that when we bring on new nuclear plants, they take on average about 1.6 million lbs when commissioning. What will happen, if in a decade, we bring on just 10 or 20 reactors each and every year? That’s another 16 to 30 million pounds per 12 months of demand just because with the start up.
StockInterview:  Does this mean the current uranium bull industry still has strong legs?

Kevin Bambrough:
I think we’re entering the second leg from the bull industry here. It’s going to move away from a supply shortage story, where we focus on the fact that we only get about 60 percent with the current consumption from mines, whilst the inventories are being worked off. Now, we’re moving into a situation in which we’re seeing an explosion in demand development. Just a couple of years ago when we first started investing in uranium, we could see probably about a dozen nuclear facilities being planned for construction throughout the globe. Now we’ve got well over 100 being planned. It seems there are new additions and talk of much more additions every evening.

StockInterview: How you envision this nuclear buildup rolling out?

Kevin Bambrough:
I don’t think it’s unreasonable to consider, looking ten to twenty years out, there are going to be a lot of countries that is going to be trying to obtain inside the position that France is in, with a much higher percentage of their power coming from nuclear generation. We could see a move to where maybe 50 percent of global energy production or much more could eventually be supplied by nuclear. There is nothing else that will truly step up and fill the void and take care of this problem that we’re having. France produces 78 percent of their electricity from nuclear. Why isn’t that reasonable for others? Look out a decade or two, and it doesn’t appear like we’re going to have the oil and the gas in order to handle our needs. Obviously we can do much more with coal, but if we’re going to keep using coal we’ve got to put in place technology to take care with the carbon dioxide sequestration. Should you want to possess a stable, secure supply of electricity, it seems that you’re going to have to go with more nuclear or eventually with these new coal technologies. I consider there is going to must be a balance of both, because the oil and gas just isn’t going to be there.

StockInterview: What do you consider is the catalyst for this anticipated development in nuclear energy demand?

Kevin Bambrough:
One of the most interesting point may be the fact that some environmentalists are leading the charge to go much more nuclear. It’s because they realize nuclear energy is the only practical alternative and because of the situation with the carbon dioxide (CO2) levels. There happen to be some latest reports about CO2 levels reaching 381 parts per billion, just spiking out from the range that has kept the globe in a relatively stabile environment for the last 400,000 a long time. If you look at the work of individuals like James Hanson, the correlation between CO2 levels and temperature is undeniable. Basically, mankind has increased the CO2 levels beyond a degree that hasn’t been seen in over a million many years. We are just starting to see the weather impacts. There are problems with droughts across the globe too as elevated hurricane activity. Going nuclear on a mass scale is starting to turn out to be recognized as a single of the only ways to have a real impact. I believe what we’re going to see is an unprecedented build out in nuclear capacity throughout the world within the coming many years and decades. I’d equate this to what happened when we went from using oil for just lamps and residence heating to using it being a transportation fuel. What’s going to happen with the individuals who have the higher quality uranium reserves and lower cost production? They’re going to be capable to reap massive profits over the coming decades.

StockInterview: Searching ahead, do you think we’ll see more deals between a little uranium producer, such as Uranium Resources (OTC BB: URRE) and the Japanese multi-national conglomerate, Itochu Corporation?

Kevin Bambrough:
I’ve no doubt that it’s going to continue to happen. Much more importantly, I’ve heard that some from the major builders of nuclear facilities around the globe, companies such as Areva are very concerned about the availability of supply going forward. When these firms are talking to countries and utilities that potentially could contract to build nuclear facilities, they’re basically being told that buyers want uranium supply assurances, or they aren’t going to give an order to buy a nuclear facility. I’ve heard they may be seeking to do joint ventures or at least contract with emerging producers to try to obtain future supply. Then, they will be capable sell their nuclear technology to countries and ensure supply.

StockInterview: Will the Chinese be satisfied with the uranium they plan to buy from Australia, or will they must tap into uranium production from another or other countries?

Kevin Bambrough:
I consider that the Chinese will probably look elsewhere as well. Countries have strategic oil reserves. Why shouldn’t they have strategic uranium reserves to supply their nuclear reactors? It makes sense to have a good stockpile of uranium considering the relative cost of nuclear power versus anything else. I don’t believe that the nuclear power industry ought to operate on a just in time basis, considering the costs and the dangers of producing sure you can secure supply. Don’t get me wrong. There is plenty of uranium inside the planet, but we’re just going to have to pay up for it. I believe we’re going to consume great deal a lot more than what we’re consuming nowadays – a decade or two out. The planet is waking up for the reality of peak oil production, and how it’s going to affect all aspects of energy production.

StockInterview: How very much of a factor will Russia play in the nuclear build up?

Kevin Bambrough:
Searching at some of the latest statements created by Russian officials, it’s completely clear to me that we’ve been correct in what we’ve been thinking for a long time: the HEU agreement (to deliver highly enriched uranium and have it blended down) is probably not going to be renewed. The Russians are planning to make nuclear technology a key export for them, really like a value added product to go with uranium production. They desire to be capable to offer a complete solution, not just uranium, but the actual building and technology around the nuclear facilities themselves. They will also have growing uranium demands domestically and have voiced concern about being capable to meet their own needs beyond 2015.

StockInterview: But nuclear energy critics claim all of these power plants won’t secure financing and most plans are just pipe dreams never to be built.

Kevin Bambrough:
Two years ago, the critics said there would never be any a lot more nuclear plants built within the U.S. Individuals employed to say nuclear was over for Germany, and that numerous countries would exit nuclear power. Now we’re seeing the exact opposite. We’re seeing proposals being done, incentives put in place, and a multitude of projects moving ahead. If what the leading scientists from NASA, the NOAA and from several organizations around the globe are saying about global warming, and the acceleration we’ve recently seen continues, individuals are going to be begging to have more nuclear facilities and cut CO2 emissions. The environmentalists will probably be leading the charge.

StockInterview: How long will it take before the proposed nuclear build up impacts the uranium mining companies?

Kevin Bambrough:
The actual build of all this takes time. I consider the increase in the positive perception, with the nuclear industry is going to continue to accelerate. All demand for uranium can come from just the planning stage for nuclear power plants, as firms look forward and try to contract future supply. Ultimately, that’s what will keep driving the uranium price higher.

StockInterview: How seriously may be the nuclear business taking the global build up?

Kevin Bambrough:
I believe the industry is starting to take it really seriously. That’s why the uranium price keeps pushing higher. Individuals are going around trying to contract for uranium, and they are finding it much more difficult. People are also starting to realize that as you might have problems, such since the McArthur River flooding, which got the uranium bull marketplace jump started, and now a problem at Cigar Lake, you really should have a great build up of inventory in order to protect yourself in this environment. Especially when the relative cost of having to switch off a nuclear facility to go to something else in a pinch is multiples higher.

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