The Uranium Market Heats Up

Deep in the snow-dusted hills along the Colorado-Utah border, George Glasier arrives to inspect the refurbishing of his Whirlwind Mine, a 3,500-foot sloping hole that is as unremarkable as it is remote. Inside, past the mine's rusted gates, Glasier's small crew has been working to shore up critical support beams left to decay after Union Carbide Corp. abandoned the operation more than 20 years ago. The work, he notes, is slow going. "Uranium has been down so low, for so long," Glasier says with a cowboy's patience, as he points to rotting wood. "Well, you just can't bring it back very fast."

Refurbishing the Whirlwind Mine may take time, but the commodity Glasier is aiming to bring to the surface is blistering hot. Uranium--the natural ingredient of nuclear reactors and bombs--is back, and bigger than ever. From Namibia to New Mexico, thousands of abandoned uranium mines are being reopened as billions of dollars pour into a decrepit industry that just a few years ago was left for dead. Still, since 2004, the number of individuals and companies that have acquired uranium-mining and -exploration rights to new or abandoned claims with the U.S. Bureau of Land Management has skyrocketed from just under 5,000 to more than 32,000 today. In Colorado alone, claims soared to more than 8,000 last year, from an annual average in the late 1990s of about a hundred. (The Bush administration has helped fuel the surge, with a tax break in the 2005 energy bill that included efforts to streamline the process for approving new reactors.)

The lure? The chance to make fast money. "Two years ago, I could've fit all the CEOs of uranium companies into a conference room," says Ron Hochstein, president of the Uranium Producers of America and chief operating officer of Canada's Denison Mines Corp. "Now, we can't fit them all in a theater."

The simple laws of supply and demand are breathing energy back into the business. Sixteen percent of the world's power is nuclear--and that percentage is growing fast. With 440 civil reactors around the globe, annual demand for uranium ore runs about 175 million pounds, but global production is only about 100 million pounds, with Australia and Canada supplying nearly half. Add into the equation more than 160 nuclear reactors under construction or on the drawing board (mostly in Asia), the instability of oil supplies and the fact that nuclear energy emits virtually no greenhouse gases, and--boom--uranium goes hot. (Just this week, The Wall Street Journal reported TXU Corp., the largest power generator in Texas, will be scrapping plans to construct eight coal-fired plants for nuclear power plants.) The global spot price for mill-processed uranium ore, or "yellowcake," has soared, from an industry-crippling low of $7.10 a pound six years ago, to a record-breaking $113 late last week. In 2007, the price has increased 52 percent alone, with the biggest price jump ever recorded in the past few weeks. Analysts say it will likely go higher. "The market is frothy," said Patricia Mohr, vice president and commodities specialist at The Bank of Nova Scotia. "But there is a renaissance of nuclear power in the world."

Yet some critics say the future of uranium in the U.S., where 20 percent of the nation's power is nuclear, is not quite so bright; the market, they argue, may be heading for a shakeout. By one estimate, as many as 500 new, small companies have joined the uranium frenzy in the past few years, with many not even owning a shovel. Many hope to snatch up uranium claims, lure investors and flip the holding contracts to actual mining companies. Let the buyer beware: during the nation's last uranium boom, the vast majority of uranium claims proved too time- consuming and costly to develop, leaving many investors holding a bag of coal instead.

Most genuine uranium-mining companies operating in the U.S. are Canadian-based and trade on the Toronto Stock Exchange, a stock market historically friendly to mining. Only a few have made the jump to Wall Street, including Canada's Cameco Corp., the world's largest producer of uranium that seven years ago traded at $1.72. Today, the stock hovers at $46.

Most analysts say that the real money players behind the uranium surge are not shareholders, but a very small, relatively unknown group of investors who have navigated complicated regulatory and licensing issues--including nuclear nonproliferation laws--to hold actual uranium stockpiles. Unlike coffee or cocoa, there is no commodities market for uranium to be traded by the average investor. Prices are set through sealed bids every few weeks between actual producers and uranium-hungry utility companies. However, uranium companies processing the ore into yellowcake are licensed by a variety of regulatory agencies to store the potentially precarious product. To get around this hurdle, investors aiming to hold real stockpiles of uranium as the price marches ever higher are cornering supplies by forming subsidiary partnerships with legitimate--and licensed--uranium companies. Analysts say with a uranium shortage already in existence, this new element has spooked the utilities into paying whatever it takes to keep the lights on. "These players came on the scene about two years ago, and have been important in boosting the price," Mohr said. When asked who these players were, Mohr added, "I rather not say" and ended the interview.

Shaky economics is not the only byproduct of the uranium frenzy. There are national-security concerns that this base ingredient for nuclear weapons may be easier to acquire, especially as uranium mining--and its ultimate production into yellowcake--has become a flourishing business in places with ample stores but traditionally weak regulatory oversight--like Kazakhstan, Namibia, Niger and Uzbekistan. As supply hits the market and countries scramble for their uranium share, industry onlookers say it will be difficult to track where all the stuff will end up. There is already cause for concern. In December, The Times of London reported that the International Atomic Energy Agency (IAEA), the global organization delegated to monitor uranium productivity and to assure compliance with the Nuclear Weapons Nonproliferation Treaty, was worried that its inspectors could not effectively monitor new supplies as developers scrambled to cash in on the soaring price. In January, Iran barred entry to IAEA inspectors, leaving open questions of not only how much uranium may be flowing into the country, but just how far that country has come in enriching the material for energy or, possibly, bombs. In March, senior nuclear officials in the Democratic Republic of Congo, a uranium-rich country, were arrested on the suspicion of participating in an international smuggling ring for yellowcake. Where the uranium was allegedly being smuggled to remains unknown.

Meanwhile, here in the U.S., uranium producers know all too well that what goes boom can go bust. In the 1970s, the Cold War and the early promises of nuclear power generated big demands and profits for uranium miners. But by the mid-1980s, accidents at Three Mile Island and Chernobyl undercut public confidence in nuclear energy. In the '90s, a flood of uranium from decommissioned Soviet nuclear warheads undercut prices. By 2000, the U.S. uranium industry--made up of a tightknit group of old-timers who were once the largest producers in the world--seemed all but wiped out. For nearly two decades, the U.S. relied heavily on foreign supplies and a steady stream of old Soviet-warhead uranium (a deal that ends in 2013). The result? Last year, the U.S. produced only 2 million pounds of uranium, enough to run about four of the nation's 103 commercial nuclear reactors for a year.

The industry's collapse has left the U.S. far behind its international competitors in actual uranium production: today, not a single mill capable of processing conventionally mined uranium is operating at full capacity in the U.S. Those that are still standing--and there are just a few--use "Manhattan Project-era" technology, critics says, some requiring millions of dollars in upgrades and investment, some years away from full operation. It is a broken supply line that casts further doubt that the thousands of claims staked in this great uranium gold rush will cash in anytime soon. "The U.S. is in the worst position because everyone else around the world has been investing in their infrastructure and supply," says Dr. Thomas Neff, a senior researcher at the Center for International Studies at Massachusetts Institute of Technology (MIT). Neff has been following the uranium market since 1974, and was a key negotiator in decommissioning the Soviet Union's weapons-grade uranium in the early 1990s. "China is in Australia. The Russians are in every uranium-producing country right now trying to strike some partnerships. For some reason, everyone here (in the U.S.) tuned out for 25 years." The short-term result, Neff says, will likely be higher prices and a possible uranium shortage for U.S. utilities.

At the Whirlwind Mine, Glasier says he'll have his mine in operation by mid-2007, producing nearly 2 million pounds of uranium ore a year. That's nearly equal to the entire U.S. production in 2006 and a current market value of $220 million. Even with no mill yet to process his ore, investors like Glasier's chances. Last year, his tiny company traded on the Toronto Stock Exchange for about five cents a share. Today, Energy Fuels Inc. is hovering around $3.35 a share. On paper, George Glasier's 16-month-old company is worth nearly $150 million. Says the veteran miner: "This time the boom? I think it's more real."