The Energy Report: How do you see the big picture for uranium? Spot prices have dropped recently. Are you still bullish?

Joe Reagor: It’s a matter of time horizon. Many analysts, myself included, believed that the uranium price recovery was going to happen in 2014. Then when 2014 didn’t happen, we thought 2015. Then when 2015 didn’t happen, we said 2016. Here we are in 2016, and uranium is back under $28/pound ($28/lb) again. The recovery isn’t happening.

There are two parts to why we’re not seeing a spot uranium recovery. First is the uranium spot market has been rather tight in terms of overall percentage of production, and there have been some nuclear plant closures in addition to shutdowns in Japan after Fukushima. Add to that a lot of production growth already build into pipelines that has come on-line and ramping up production and creating a larger amount of spot uranium to be sold into a weak market. Cameco Corp.’s (CCO:TSX; CCJ:NYSE) Cigar Lake is an example of that. So we’re getting this extra pressure on the spot market, but if you look at contract pricing, it has remained relatively stronger, in the low $40s. Producers are making decisions based on the contract price, not the current spot price. So there is a disconnect between spot and contract pricing.

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The other reason we aren’t seeing a spot uranium recovery is Fukushima had a longer and more lasting impact on the overall market than any of us thought was possible. The restarts in Japan have been slow, but that’s just one country in the overall puzzle. Other countries have looked at Fukushima as a reason to change regulations, which has stalled the development of additional reactors. China, for example, had a three-year hiatus from allowing any nuclear reactor project to be developed, as it rewrote its regulations.

So, as the supply has come on-line and demand hasn’t, we’ve created and prolonged this oversupply. As we look out to 2018–2019, I see a decline in production and expect a significant rise in supply. Most analysts are forecasting a 2018–2019 shortage. We look to that time frame as having the potential for a full recovery in uranium prices to more sustainable long-term levels of $50–60/lb.