I was having a coffee last week with mining entrepreneur Irwin Olian, catching up on the latest news with his companies.
The weather was unusually nice and, in the afternoon sunshine, we were feeling relaxed and quite philosophical.
Just as Irwin was observing how sometimes you can get the greatest insight into a market from an outsider, some students on the next table, who were loud, opinionated and not altogether ill-informed (like most students, really) declared that: "It's all over for nuclear power".
"Why?" we asked them.
Nuclear power? No thanks.
The Public Doesn't Want Nuclear Power
"It just is," they said. "It's all over."
"But it's possible the reaction to Japan has been exaggerated", I ventured.
"Doesn't matter", said one of the girls. "We don't want it. Nobody wants it. We've had enough."
Her friend, an American, took over. "It's the same back home. We don't want it. Nobody does. We've heard all the arguments about nuclear being safer than coal and stuff. I know in Japan the earthquakes were outlier events. And at Three Mile Island and Chernobyl and the buildings were old. Doesn't make any difference. Nobody wants it."
Another piped up. "Japan's supposed to be the most technologically advanced country on the planet – and they had problems. There are power stations on fault lines. The ocean's contaminated. I don't want to be eating radioactive fish. And how do you get rid of the waste? How do you store waste for a thousand years? Nuclear power is over. Nobody wants it."
Irwin looked at me, as if to say, "they may have a point".
And they may well do. Public and media sentiment is such that, rightly or wrongly, the future for nuclear power, and by extension for uranium miners, is nowhere near as rosy as it was just three months ago.
How many power failures do we have to endure before that sentiment changes? How high does the oil price have to go? I don't know. We may not endure any power failures at all. We may find a substitute source of energy.
Maybe the public will happily pay higher prices for their energy if it means not having it come from nuclear sources. There are alternative nuclear technologies that don't involve radioactive uranium. Maybe they will be adopted.
However it works out, it's not looking good for uranium.
Why Copper's Prospects Could Decide the Future for Uranium
Yet, bizarrely, the deciding factor for the future of uranium could be the outlook for copper prices. Trouble is, the news on that front isn't good either.
I'll explain.
The Olympic Dam mine in the South Australian outback is the world's largest uranium deposit. It's also the world's fourth-largest copper deposit. And the world's fifth-largest gold deposit. Don't you wish you were the prospector who discovered that?
It's currently owned by BHP Billiton. The mining giant is weighing up a planned $30bn expansion. The final decision is expected early next year – $30bn investment decisions are not something even mining giants make quickly.
Annual capacity at Olympic Dam is now rated at 235,000 tonnes of copper, 4,500 tonnes of uranium and 100,000 ounces of gold. Fully expanded, that capacity rises to 750,000 tonnes of copper, 19,000 tonnes of uranium and 800,000 ounces of gold. The planned increase in uranium output would equal roughly 20% of present global production.
Why would BHP want to mine all that uranium when prospects for the price are so weak? Won't they just sit on it? The fact is, given all the problems they've had with demonstrators and regulators, that's probably what they'd like to do.
But here's the problem. BHP cannot just produce the copper and leave the uranium. The nature of the mineralisation is such that the uranium actually has to be separated from the copper.
And if the price of copper stays about $4 a pound, the potential profit might be so compelling that BHP will produce the copper, and sell the uranium 'at any price'. Even at a loss.
Supply Could Surge Just As Demand Collapses
That's not the worst of it. There is the elephant in the room that is Rössing South in Namibia.
Namibia's Rössing Uranium Mine, largely owned by Rio Tinto, started operations in 1976. In 2009, it produced 4,150 tonnes of uranium oxide, making it the third-largest uranium mine in the world.
But just to the south, lies Extract Resources' Husab project, also known as Rössing South. It's one of the discoveries of the decade. In August, a ten-fold increase in the resource estimate was declared, taking it to 257m pounds of U308, making it the world's sixth-largest known uranium deposit.
The company says: "Extract plans to develop a large-scale load-and-haul, open-pit mining operation ... With anticipated annual production of approximately 15m pounds of uranium, the Husab Uranium Project would become the second-largest uranium mine in the world, second only to the McArthur River uranium mine in Canada".
This is still several years away. But think about the impact of Husab – potentially the world's second-largest uranium mine – coming into production, plus a 20% increase in world uranium supply from Olympic Dam, just as the world's nuclear industry is cutting back on its expansion. I just can't see there being much future for uranium exploration and junior mine development.
These are the sorts of changes that bring great commodity bull markets to an end. And it's why I have changed my thinking on the sector. I have now decided I am not touching uranium juniors.
Irwin Olian feels the same way. He emailed me this yesterday: "The worldwide backlash against the nuclear power industry is only beginning to be felt and promises to deal a devastating blow long-term to the uranium stock sector. The catastrophic events in Japan were followed by a precipitous drop in uranium share prices, which have just had their obligatory dead cat bounce.
"What lies in store is a long-term decline in the sector as new projects are deferred or cancelled, public sentiment and political pressures make it impossible to get permitting or green lighting, uranium prices retreat and juniors find it virtually impossible to get new financing to develop projects for which there will be no economic justification. This will all be reflected in a slow, inexorable decline in share prices and ultimately the failure of most uranium juniors."
It's a grim outlook. But I think it's the right one.
This article first appeared in Money Morning, the free daily investment email from UK investment magazine, Moneyweek. Sign up here - it's free.
