A detailed study on energy issues released by Southern Cross Equities has painted a strong growth pattern for uranium for nuclear power and assumes that if uranium mine production grows only by the current 3% per annum then the shortfall in 2030 could be 30,000 tonnes based on China's unrelenting growth continuing.
Southern Cross said the unprecedented structural increase in commodity demand has coincided with decades of under-investment in productive capacity.
The Sydney-based broking house cited Kloppers' reported statement that current energy supply is fully utilised that has resulted in higher prices that are structural rather than cyclical.
The significance of this comment should not be under-estimated. We believe this represents a genuine endorsement of our ‘stronger forever' commodity view, Southern Cross' review said.
The report said there is little doubt energy, water and food are globally scarce and that the security of supply for these vital commodities will become a major issue for governments world-wide.
In this regard currently we are witnessing China through its sovereign wealth fund (or masquerading State-owned vehicles) taking equity stakes in companies supplying strategic commodities.
There is no doubt that strategic commodities in the form of oil, LNG or uranium are strategic commodities of the highest calibre, Southern Cross said.
In Australia the Rudd Federal Government has committed to a 20% increase in alternate renewable energy use by 2020, as well as plans to reduce CO2 emissions by introducing a carbon credits trading scheme by 2010.
We expect (Australian) environmentally-friendly companies with low carbon emissions generating carbon credits will trade at a significant price/earnings premium, the report said.
Uranium is the ultimate alternate green energy source. It is highly environmentally friendly compared to oil considering that after the initial mining and processing a nuclear reactor emits no CO2 emissions.
However, even adjusting for mining and processing, the carbon emissions of nuclear power are less than all renewable energy sources with the exception of hydro-electricity.
In our view the world continues to have irrational fear of nuclear power.
Southern Cross said the World Nuclear Authority (WNA) reported nuclear reactors supply about 17% of global electricity requirements. In contrast to the rest of the world, Asia is a major nuclear power generator. South Korea and Japan generate 45% and 30% respectively of electricity through nuclear power while the global figure is 18%.
WNA reportedly said China, Japan, India and South Korea will account for 36% of the world's new electricity generation out to 2020, of which nearly 40% will come from nuclear power. But at this stage China generates just 1.4% of its power from nuclear plants and India just 4%. The upside for uranium as an energy source in these countries is huge.
Southern Cross said right now some investors have been spooked by the spot uranium price falling to the low $US60/lb range, however, unwinding of large speculative positions has played a large part in the fall.
At current levels, we believe the downside risk for the uranium spot price is very limited. The hedge fund selling has abated.
In fact, we are hearing that speculative short positions have been unwound with the global power disruptions. In addition, supply remains dependent on secondary sources.
We believe the spot price is now close to the marginal cost of new production, Southern Cross said.