China Demand for Uranium, World Growth in Electricity Demand to

Drive Uranium Price Higher

Industry expert says all new production already factored in

uranium price “We are consuming far more uranium than we are

producing worldwide,” explained David Miller, Wyoming

legislator and recently appointed president of Strathmore

Resources (TSX-V: STM; OTC: STHJF.PK). “All the new production

is already factored into the future market for uranium. We’re

underwater right now without building one more nuclear power

plant.” Nuclear reactor requirements have far outstripped

current mining production for the past two decades. Current

worldwide production is more than 80 million pounds, but the

demand for uranium, which fuels nuclear reactors, is running an

annual deficit of approximately 60 million pounds.

Electricity: Uranium’s Supply and Demand Problem

“We’re not going to run out of uranium, but where will the

price go to encourage new production?” asked David Miller. “We

are around over $33/pound now. Could it double again? It

wouldn’t surprise me at all.” Kevin Bambrough, a research

analyst for Sprott Asset Management, heartily agreed with Mr.

Miller, saying, “We have just started a long term uranium bull

market that will end in a ‘uranium mania’ as utilities and

countries drive uranium prices to unbelievable highs as they

compete to secure supplies."

That driving force is demand for more electricity. Over the

past 25 years, total world energy use expanded by almost 50

percent, with stronger growth in electricity usage. Demand for

electricity is increasing far more rapidly than overall energy

use. Electricity demand has been projected to grow 2.8 percent

annually through 2010, and substantially more between then and

2020. About 2 billion people currently have no electricity

access, and with United Nations forecasts of world population

growth by 1.5 billion people in 2020, electricity demand will

continue to grow.

As an interim solution to the greenhouse gas problem and

climate changes, a growing number of countries are

investigating nuclear energy to solve their burden of a soaring

electrical demand. Presently, there is as much electricity

generated by nuclear power as was provided by all sources

worldwide in 1960.

Nuclear power generates more than 16 percent of the world’s

electricity, nearly 24 percent of the OECD and 34 percent of

the European Union’s electricity needs. In an April 2005 speech

to the National Small Business Conference in Washington,

President Bush announced, “Nuclear power is now providing about

20 percent of America's electricity, with no air pollution or

greenhouse gas emissions. Nuclear power is one of the safest,

cleanest sources of power in the world, and we need more of it

here in America.”

Demand for electricity is projected to impact other commodities

as well, not just the price of uranium. In the Energy

Information Agency’s Annual Energy Outlook 2005, U.S.

electricity demand will bring about increases in natural gas

consumption. By 2025, the electric power sector will account

for 31 percent of total demand for natural gas, as consumption

increases from 5.0 trillion cubic feet in 2003 to 9.4 trillion

cubic feet in 2025.

China’s Demand May Be Greater Than Anticipated

Today, 441 nuclear power reactors in 31 countries provide more

than 16 percent of the world’s electricity. In 2003, that was

2525 billion kilowatt hours. Eleven countries are constructing

thirty more reactors, mainly in China, but also in Russia,

Japan and Korea. The International Atomic Energy Agency has

projected at least 60 new power plants will be constructed over

the next 15 years. By 2020, nuclear power’s electricity

production share will increase to 17 percent.

“China is the future wild card,” said Miller. “Their current

uranium demand is miniscule. They have a small nuclear

industry. They may have three or four thousand megawatts of

capacity. Their uranium demand is only about 4 or 5 million

pounds per year. They meet that internally from their own

uranium deposits. But what they are planning for nuclear is

probably the most aggressive program in the world. I visited

China in 2003 to teach ISL (in situ leaching) uranium geology

and ISL mining techniques to a couple of institutes. At that

time, they were talking about building two new nuclear power

plants per year for the next 20 years.”

But as Miller observed, they may have more ambitious plans. He

added, “Since then, I have heard of more aggressive programs.

One article I read recently was entitled, Let 1000 Reactors

Bloom. That is more than 200 percent of the nuclear reactors we

now have on earth. I believe that is what the Chinese will be

doing in the next 40 – 50 years, converting nearly 100 percent

of their electrical generation from nuclear power.” Currently,

China is generating less than three percent of their

electricity from nuclear energy.

Miller speculates of how this might impact the price of

uranium, “If they are building nearly three times the world

fleet in just China, then that would be about 500 million

pounds of uranium demand from China in fifty years. Other

companies are announcing new nuclear power plants.” What does

that mean for the price of uranium? Miller concluded, “So, the

demand for uranium is going up. I think the growth in demand

will be more rapid than we realize.”

Uranium Mining: A Slow Process

David Miller, who was previously interviewed by

StockInterview.com in June 2004, 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.”

Through 2005, many uranium exploration companies announced new

projects throughout Canada and the United States. Miller did

not see how their efforts would immediately alleviate the

uranium supply crunch, “If you are talking about any of those,

such as in Labrador or the Yukon or in the basins outside the

Athabasca Basin, or even within the Basin, for those that are

just now doing their first exploration, you are talking the

year 2020 before those could come online and supply uranium to

the world market.”

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. There is another one called Shea

Creek, which was discovered by Cogema more than a dozen years

ago.” Could they start the permitting process on that one in

the near future? “Absolutely,” Miller responded. “But it might

be close to 2015 before it could bring any uranium to the world

market.”

The future largest producing uranium mine in the world is

likely to be Olympic Dam in Australia. It’s basically a copper

mine with uranium grades. On October 27th Hong Kong-based

institutional advisor Marc Faber, and author The Gloom, Boom

and Doom Report, told Dow Jones newswire that he thought copper

prices would fall by as much as 40 percent. (Note: Marc Faber

also said, “I’d be a physical buyer of uranium.”) “What happens

when copper is $0.50/pound? What will be their cost of producing

that uranium?” asked Dave Miller. “Olympic Dam is low grade

uranium, less than 0.05 percent U308. Their cost to operate the

uranium portion of that will go up, if copper prices go down.”

Where else do utilities turn for their growing uranium needs?

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. 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, controlling

approximately 3 million acres in Canada. We have dozen

different individual projects there. We are starting the

exploration process on all of those."

The case with Cameco (NYSE: CCJ), the blue chip publicly traded

uranium producer, may also help fuel uranium prices rally to

higher levels. They have forward sold their production. Added

Miller, “I would bet their average sales price, under contract

right now, of the 20+ million pounds they deliver every year is

somewhere in the low teens – maybe $13/pound plus/minus $1-2. As

these contracts mature, and bring on new contracts, that price

is going to keep going up. They should keep going up for the

next five years.”

The Case for Nuclear Energy

As electricity demand grows by leaps and bounds during the 21st

century, many of the world’s governments are seriously

considering nuclear energy as a safer alternative to coal-fired

plants. As many study the safety issues of nuclear-powered

electricity, they tend to conclude that nuclear energy may very

well provide a healthier, as well as a less expensive,

alternative to present power generation methods.

Miller pointed out, “In the 1970s, when the anti-nuclear

movement was very strong, the U.S. was then mining and burning

600 million tons of coal each year. And now, thirty years

later, because the anti-nuclear industry was successful, we are

burning 1 billion tons of coal per year.

According to the Environmental Protection Agency, U.S. air

pollution in 1999, as a result of energy from coal, emitted

more than 13 million tons of sulfur oxides and nearly 5.5

million tons of nitrous oxides. In a Harvard School of Public

Health study, as many as 70,000 Americans are dying each year

as a result of air pollution. From sulfur dioxide alone,

Harvard estimated that 2400 Americans die for every million

tons of sulfur dioxide emitted, or more than 30,000 American

deaths annually.

But, air pollution is far worse elsewhere. “The pollution

levels in China – from Shanghai to Beijing – are shocking,”

said Miller. “Emphysema kills 5,000 people per year in the coal

mines. They need nuclear power, probably more than any area on

earth, to clean up their air.”