Resource World Magazine

IN TE RV I EW WITH RECENT DISCOVERIES AND DOZENS OF NUCLEAR POWER PLANTS UNDER CONSTRUCTION, INVESTORS ARE PUTTING THE SPOTLIGHT ON THE URANIUM SECTOR RICK RULE on uranium by Ellsworth Dickson Rick Rule, Chairman/Founder of Sprott Global Resource Investments Ltd., is a sought after speaker at resource investment conferences throughout North America; he usually draws a standing room only audience. Although based in California, where he is originally from, Rule is a graduate of the University of British Columbia and has successfully invested and financed dozens of Canadian resource companies. Recently he has been examining and investing in the uranium sector, a sector that has been beaten down since the Fukushima disaster in Japan. However, the tide is slowly turning and the price of uranium is poised for a rebound for several reasons and, along with it, the share prices of uranium producers. In addition, a few select junior explorers are also worthy of consideration. In an interview with Resource World, Rule answered a few questions for us about the uranium sector. Why do you think the price of uranium will increase? "The uranium industry, as a whole, has stated that in order to earn their cost of capital they need long-term prices of US $75-80 per pound," said Rule. "In fact, the uranium price was happily at US $80 per pound until the Fukushima disaster. When that took place, two things happened: it took a substantial part of world uranium demand out of the market overnight and, at the same time, 6 www.resourceworld.com increased the supply of uranium on a temporary basis because the Japanese reactor industry sold their in-place inventories as they weren't going to use them and they needed to generate cash." "So you had a decrease in demand and an increase in supply," Rule explained. "Now it looks like the restart of the Japanese nuclear industry will take place over the next 18 months. Both of the situations that led to the decline of the price of uranium from US $80 to $40 are being reversed. In other words, demand is coming into the market. In the near term, the Japanese need to re-stock the same uranium that they de-stocked after the Fukushima event. So I basically see an unwinding of the circumstances that caused a 50% decline in the uranium price." Rule says he doesn't think the ending of the Megatons to Megawatts program will have a significant effect on uranium prices as it doesn't change the supply scenario very much. The program, which ends this year, converts high-enriched uranium taken from dismantled Russian nuclear weapons into low-enriched-uranium for nuclear fuel. The World Nuclear Association website states that there are 432 operable civil nuclear power plants around the world and 67 under construction – and they will all need uranium. "That's a really important Rick Rule, Chairman/Founder of Sprott Global Resource Investments Ltd. point because if you are building a nuclear power plant, to finance the construction, you need to lock in supplies of uranium," said Rule. "Lenders want to know that you are going to have uranium supplies in order to amortize the loan. That's the reason why, although the spot market is at US $40 a pound, the term market is at US $60-65. All those nuclear power plants have to lock in uranium supplies over the long term. The price of uranium is a fairly insignificant contributor to the total cost of generating nuclear energy. Demand is JULY 2013

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