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Strathmore Minerals (website) is continuing work on their Athabasca Basin properties.

The spot price of uranium U3O8 yellowcake climbed to US$34.25.

Strathmore President and COO explained the uranium mining market here.

David Miller, who was previously interviewed by StockInterview.com in June 2004 (view article), reflected on last year’s forecast, “I thought $30/pound was sufficiently high to encourage enough new production around the world.” But there are major issues with supplying the increasing appetite of the burgeoning nuclear power industry. Miller warned, “The problem with encouraging new production is you don’t turn these things on and off. The only uranium, coming onto the market in addition to what’s already planned right now, will come from the already-discovered deposits”

Two years from now, Miller thinks the spot price of uranium could double again. “There are going to be a lot of people trying to put uranium mines into production, but it is not an easy process.” Permitting requirements in countries where most uranium is mined are roughly comparable. “If you haven’t done any work, after a discovery, it still will take about four to six years to mine in any of those areas.”

In early 2004, there were probably less than twenty uranium producers and exploration companies. Since then, the number of uranium exploration companies has jumped to more than 200. Miller warns investors that it could take up to 12 years for a grass roots project to begin mining yellowcake. Miller explained, “Starting, finding, permitting and mining a project is probably going to take a minimum of 12 to 20 years. From the start of the exploration program to defining the ore body, after you make a discovery, to starting the background and permitting process, to development and then finally mining – it’s going to take a long time.”...

But, what about the world’s richest concentrations of uranium in Canada’s Athabasca Basin? Will they help stem the rising uranium price? In a nutshell, Miller says no. He explained, “The next one to come online is Cigar Lake, but it was discovered over 20 years ago. Cigar Lake may come online in 2007 or 2008. There is another one called Shea Creek, which was discovered by Cogema more than a dozen years ago. They are having some very good results on that.” Could they start the permitting process on that one in the near future? “Absolutely,” Miller responded. “But you are talking about 8-10 years before that one could come online. It might be close to 2015 before it could bring any uranium to the world market.”

David Miller argues that some of that uranium production is likely to come from the smaller, but well-capitalized, companies, such as Strathmore Minerals. “Our strategy from day one, and we haven’t veered from this at all, has been to acquire as many known uranium deposits as we possibly could,” explained Miller. “We started early in this uranium cycle in 2003. We were out there before 95 percent of these other uranium companies even thought of starting uranium companies. We were able to pick up some very good deposits in New Mexico and Wyoming. These are known, drilled-out uranium deposits in the country that’s produced as much as uranium anywhere else on earth. We’ve taken all that exploration information, where they discovered these old deposits, and have acquired a number of those old deposits. Now, we have opened a permitting office in New Mexico and starting the permitting process to put those into production, somewhere down the road. We don’t know if we can do it in four years or six years. It’s a long process and all kinds of studies must be done to get these fully permitted and into production.”

But there is a second part to the Strathmore Minerals strategy. Miller announced, “Don’t ignore the richest uranium province on earth, which is the Athabasca Basin in Canada. Strathmore is the Number One landholder in the Athabasca Basin., even larger than Cameco. We control approximately 3 million acres in Canada, and nearly all of that is in the Athabasca Basin. We have dozen different individual projects in the Basin. We are starting the exploration process on all of those. As I said earlier, exploration takes a long time. We have not made any discoveries yet, and it may be three to five years before we make a discovery.”

The enormous demand/supply imbalance is still in place as the chart at the beginning of that article shows. Demand is way above supply and it is increasing (441 working reactors in the world today, with 30 more being added). Supply takes a very long time to increase. Uranium is extremely inelastic because the cost of uranium is such a small percentage of the cost of running a nuclear reactor. If prices hit $100 a pound for yellowcake, it still won't put a dent in demand.

Downblending weapons grade uranium has worked very well to keep the demand/supply equation in imbalance and caused uranium mining to effectively shut down for over a decade. But that source is running out and with Korea, Iran, and possibly others jumping into the nuclear arena, there's going to be a lot of reluctance to downblend too much weapons grade uranium. We may enter another nuclear cold war. Downblending produces cash, but it takes a lot more money to rebuild HEU supplies than you get from downblending and selling them off.

I don't like relying on these demand/supply imbalance gambits for investments since they can take an unknown amount of time to play out. Level 3 is still waiting for the Great Pumpkin to stop the constantly falling bandwidth prices and it's been 3 years. As far as I know, Buffett is still waiting for silver prices to go up. But in this case, the prices are already high enough and they just keep going higher. They've been above $100 in the 1970s, but only about $43 in today's dollars.

UPDATE Nov 30, 2005: The price of U3O8 went up yet again to $34.50. Also, the US Nuclear Regulatory Commission renews Millstone Power Station's operating license for another 20 years.

UPDATE Dec 7, 2005 ("a day that will live in infamy"): The spot price of U308 is now $35.25.