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Brent Cook says “Nuclear power is a real and viable, albeit imperfect, solution and I don't think it or the demand for uranium is going to go away.” We've had three major nuclear accidents with a great..

15 Jun 2011

Are there viable options to nuclear power for clean energy? Is another uranium boom on the horizon? Or should we invest our resource dollars in thorium? If you've been pondering these questions, join The Energy Report in this exclusive interview with a pair of the resource sector's most highly regarded experts, Global Resource Investors Founder Rick Rule and Exploration Insights Author Brent Cook. The Energy Report caught up with them during Cambridge House's recent World Resource Investment Conference in Vancouver.

Companies Mentioned: Extract Resources Ltd. Hathor Exploration Ltd. Magma Energy Corp. Paladin Energy Ltd. Ram Power Corp. Rio Tinto Rockgate Capital Corp. Uranerz Energy Corp. Uranium Energy Corp

The Energy Report: It may be too soon after Japan's crisis at Fukushima to judge, but at this point, what's your take on the worldwide infrastructure for nuclear energy and demand for uranium?

Brent Cook: Uranium's interesting right now and certainly a contrarian play. Global warming is a fact and the overwhelming majority of the legitimate research, and I mean legitimate peer-reviewed scientific research, points to anthropogenic CO2 as the primary cause of global climate change.

So we have a serious environmental issue, and none of the green energy alternatives will solve it on their own. They can produce only a relatively small fraction of the energy we're going to need. Nuclear power is the only non-CO2 emitting energy source out there that can significantly offset large-scale hydrocarbon-based energy sources.

Nuclear power is a real and viable, albeit imperfect, solution and I don't think it or the demand for uranium is going to go away. We've had three major nuclear accidents with a greater than five ranking that I can think of—Three Mile Island, where there are no documented deaths and it was pretty well contained; Chernobyl, which was a disaster in a backward totalitarian country; and Fukushima, which we are still watching but which appears to be contained.

If you pit the damage and deaths from nuclear incidents against the damage caused by CO2 gases, there's no real comparison. Nuclear energy just has this irrational phobia associated with it.

TER: Are the current nuclear facilities' needs for uranium enough to elevate the uranium price? Or do we need new facilities to increase demand?

Rick Rule: On a global basis, we use about 150 million pounds (Mlb.) of uranium and we make 90 Mlb. We're living off historical surpluses. When those surpluses are gone, one of two things will happen—the lights go out or we produce more power. It's as simple as that.

TER: Even assuming that manmade CO2 is the biggest cause of global warming, the fear factor of nuclear fallout from a disaster seems greater than the fear factor of more CO2. There's talk about taking some plants offline in Europe.

BC: It's true. Germany says they plan to take nearly all of their nuclear facilities offline by 2022, which I think amounts to somewhere in the order of 3% of global energy production, so it's not that big a hit to uranium demand. There's no way we can get the power we need from coal and fossil fuels without continuing to add to the CO2 problem.

The earth and its inhabitants are feeling the effects of that right now and it’s bound to get worse. I have to assume a more rational energy policy will emerge in time that will include nuclear.

RR: Germany has said they're going to bring all of their plants down in 14 years. As Brent described, that's 3% of current demand. It's 1.5% of scheduled demand 15 years out. That's irrelevant in the context of the uranium price and nuclear demand.

But more importantly, I suspect that Germany's announcement is a well-meaning sop to the greens. I don't believe they'll bring down their nuclear power industry because if they do, they eliminate 19% of the power in the country, and the lights go out. What will the German public say about the lights going out?

If you want to see protests in Western countries, wait until people's refrigerators and air conditioners stop running or the manufacturing base shuts down because there's no power. Then I think you'll see popular protest on a truly spectacular scale.

In the immediate reaction to the events in Japan, the discussion about our nuclear power plants in California centered on two things. One was bringing down American nuclear power. Because the U.S. gets 20% of its energy from nuclear power, the chances of taking our nuclear capacity down are zero. The second argument pertained to California, where our governors have said that green sources will provide 30% of the State's energy by 2020.

That's up from 3% now and California's broke. Another point. There was a lot of discussion in the popular media about what would happen with the San Onofre nuclear plant in the context of a Richter 9 (R9) event in Southern California. That's two orders of magnitude greater than any earthquake we've suffered in Southern California.

I don't know what would happen to San Onofre, but I do know that a collapse in the natural gas distribution system in Southern California in an R9 event would probably kill 150,000 people. The impact on the refining complexes in South Los Angeles, North Orange County, Long Beach and other places like that probably would kill another 15,000.

TER: Isn't thorium a safer alternative to uranium in producing nuclear energy?

BC: That's an option, but the technology isn't developed enough for it to come into the production scenario. It's at least 10 years down the road and we really need to see economic working examples of this to convince the power companies of its value.

RR: Thorium appears to particularly excite the subscription-driven newsletter business. A total of 63 nuclear power plants are under construction worldwide, with an average price tag of $4B per plant. This means that the power industry, not the newsletter industry, is betting $250B on uranium—and, as far as I know, nothing on thorium. In terms of producing power, you have to decide whether the power industry or the newsletter industry is better-versed on the economic efficacy of technology.

TER: Nuclear plants require a great deal of permitting. With the protests, fear-mongering in the media and a lot of politicians on the anti-nuclear bandwagon, what's the chance that the government will bar permits for nuclear?

RR: I think it depends on the government. In the immediate aftermath of the Japanese incident, the Chinese government said that China's nuclear power industry was going to be under review. The review is about 60% complete, and it goes something like this: "Those were old, bad Japanese reactors built on a tectonic subduction zone. Ours are new, good Chinese reactors built on the Asian plate." That's the series of political processes that will occur around the world.

A whole range of people—some well-intentioned, others Luddites—are demonstrating about nuclear. Irrespective of your feelings about global warming, there's a whole series of environmental risks associated with non-nuclear energy.

TER: We can all sit here and agree with that logic, and point to all the people killed in mining coal. But that's not what the populations seem to be thinking about. Even Japan is talking about decreasing reliance on nuclear energy in favor of LNG.

RR: If I were a betting man (and I am) and I could find somebody to take the back side of the bet, I would bet that Japan changes course within a decade. People say, "Well, my investing horizon is 90 days, so what they do a decade from now doesn't matter." But it does matter because Japan slowing things down doesn't change the demand outlook for uranium in the near term.

And if they don't change, it doesn't change it in the long term. The only thing that's happened is that people have allowed their reaction to a boogey man called nuclear power to influence their response to investing without looking very deeply at the fundamentals.

My own suspicion is that the Japanese have no choice but to stay with nuclear. The Japanese themselves have said that the advantage of nuclear power for them was that it was the densest fuel in the world. They can import uranium and have it on Japanese soil so that they have a geopolitically secure source of energy in a world where there's less and less security. You can't store hydropower. You can't store the sun. You can't store enough natural gas or coal to make a difference. But uranium is such a dense fuel that Japan could easily store five years' supply.

You can understand the interest that places like Korea, Japan, Taiwan and Singapore have had for nuclear energy and the advantage of uranium's density relative to other sources of energy if you imagine a deeper schism between Sunnis and Shiites that snaps the Straits of Hormuz shut and cuts off supplies of export crude from the Persian Gulf and LNG from the fields in Qatar, Kuwait and Saudi Arabia.

TER: You've both said that we still need to mine more uranium as we don't produce enough supply to meet the demand of currently operating plants, let alone any new ones. What are the risks with uranium exploration and mining?

BC: The same with exploration and mining of anything else on top of a much more difficult permitting process, particularly if you're looking at a high-grade deposit. Even in Saskatchewan, if Hathor Exploration Ltd. (TSX.V:HAT) tries to get a mine permitted, it could be 7 to 10 years before the company could even start digging that first hole.

TER: That's an impossible timeline if demand already exceeds supply.

BC: Oh, other places in the world have much larger deposits, although they're lower grade, that are ready to go. In Namibia in particular, Paladin Energy Ltd. (TSX:PDN; ASX:PDN) is already in production. Extract Resources Ltd. (TSX:EXT; ASX:EXT) has its Husab Uranium Project, the fifth-largest uranium-only deposit in the world. Rio Tinto (NYSE:RIO; ASX:RIO) has a huge deposit that's in production and expanding.

TER: Suppose that the U.S. government decommissions some nuclear weapons, creating a surplus of enriched uranium that nuclear power plants could use. Would that additional supply be a black swan that someone investing in uranium should worry about?

BC: That's a good point. And, yes it's a possibility.

TER: Russia did it for years.

RR: We've done a bit of it too, and I hope it increases. The idea that we need enough bombs to kill the world's population 1,500 times over seems like excessive security to me. I'd love to see that stuff blended down as fast as we can. Although I think the Strangelove argument is a great one, we're going to need to burn de-fissionable material to keep our reactors open until such time as we can increase production enough to sustain current demand and meet future demand.

The risk we run is not having too much but having too little, because having too little makes nuclear a less secure source of power. For me, the real question is, can we develop a uranium industry that can produce 200 Mlb. a year? We need to demonstrate to the people who finance nuclear power plants that they'll have some uranium to burn in those plants so they get their loans paid back.


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