1. Casey Research - Marin Katusa:
Time to Invest in Uranium
Tuesday May 14, 2013
While nuclear power continues to be vilified politically, its economic realities remain unchanged.
With many nations already dependent upon nuclear energy for a significant portion of their base
load energy requirements and others building and planning new nuclear power plants, those
economic realities point to a blossoming boom in uranium. Casey Research Chief Energy
Investment Strategist Marin Katusa explains it all in this interview with Uranium Investing
News.
UIN: Marin, I want to start off with something easy — why is uranium considered a
contrarian investment?
Marin Katusa: Well, first of all, most recently because of the Fukushima disaster of 2011, it’s
seen as a no-go. Right now, globally, the theme that you hear is that nuclear is dying or is dead.
But yet, that couldn’t be further from the truth. On top of that, companies cannot produce the
material for what it’s selling for right now. Uranium exploration has almost come down to a
snail’s pace because there’s no capital that is being attracted to it.
That being said, the stars are lining up quite nicely for uranium. By that we I mean we have
proved that nuclear is not dying, nor is it dead. If anything, it’s growing at a rapid pace globally.
For example, one in five houses in the US is powered by nuclear energy. China plans on having
twice as many nuclear reactors as the US has, and the US has 104— most in the world right now.
And China is committed to that program. Furthermore, the spot price of uranium, eventually,
with this HEU agreement, which is expiring at the end of this year, there’s going to be a race to
acquire a stable, long-term supply of uranium. So, those are the two main reasons why uranium
is, of all the commodities globally, the most contrarian investment.
UIN: Uranium prices haven’t taken off so far this year as analysts had hoped — what has
led to this slowdown?
MK: Well, a few things have happened. Because of the Fukushima disaster, remember: look
how many nuclear power plants went offline in Japan.

2. After Fukushima, there was a huge amount of uranium that hit the market. And it was absorbed
quickly. What people fail to understand is that the Russians were one of the biggest buyers of the
uranium from the Japanese — which very few people have ever commented on. And, more
importantly, the Russians are one of the largest producers of it. You know, they provide almost
half of America’s uranium.
Then there was Germany saying that, “well, we’re not going to produce; we’re going to slow
down our nukes.” So, there’s been a slow transition.
On top of that, in the US, ConverDyn, which takes the U3O8 and converts it to UF6, was also
shut down. So, all of the things were built up to create a stockpile of U3O8. That in reverse is
now changing. ConverDyn can come back online; the Japanese are basically saying, “we’re
putting these reactors back online.” And Germany really has no choice. After this election you’ll
see that — they’re basically importing French nuclear energy.
So all these factors are coming in. The Chinese are building these reactors. They’re not talking
about them now, they’re building them. Even countries like Saudi Arabia, which is the number
two in oil8
in the world; they’re building 16 nuclear reactors.
So those are the reasons why U3O8 hasn’t taken off yet. And you know, we’ve talked about this
in our newsletter for a while, saying “look: it’s not going to take off until the end of 2013, early
2014, before we start seeing it slowly move up.”
UIN: The Megatons to Megawatts program has helped moderate prices over the last 20
years or so — will the end of this program be a positive catalyst for the market?
MK: Definitely. That agreement has already ended; that’s expired. Final shipments are coming
at the end of this year. There’s something called the Transitional Agreement, which is where the
Russians said, “hey, don’t worry, we’ll bring you guys uranium, but it’s not going to be from
downgraded from nuclear warheads anymore, it’s going to be from reprocessed tailings.”
Uranium is now going to be a higher cost, because now, unlike when the original HEU
agreement was done — in 1992 when Russia was in chaos— the game has changed and the
Russians are building nuclear power plants around the world, and with that comes a long-term
supply contract at the feed.
UIN: What are the costs associated with nuclear versus other types of energy?
MK: What people have to understand is if you look at Japan, they were paying over $17 per mcf
in gas. Why? They had to produce more gas for their electricity grid because the nuclear plants
were down and they couldn’t even provide enough for the gas.

3. Uranium on the other hand, the big cost is building these nuclear power plants. And if you’re to
take a triple in the spot price of uranium, it would make an insignificant cost to the overall
electricity production. So the nuclear power plants, whether they’re paying $40 or $100, it makes
no difference to them. It changes the actual electricity costs marginally. Whereas natural gas, the
biggest cost is actually the commodity. It’s not the actual physical natural gas plant or coal plant.
So the elasticity of the electricity cost is way different, much higher for the coal and gas plants
because their biggest cost is the actual commodity, the natural gas or coal. Whereas for the
nuclear power plants, once you build that plant, your spot price, your commodity makes less than
a 3 percent difference to your cost of electricity. That’s an important thing for people to
understand.
And literally, we’re going to wake up one day, and you know, when the Russians do an
agreement with the Chinese; the Chinese are investing the equivalent of over $400 billion into
the nuclear sector. The price for uranium is irrelevant to that amount. Getting a long-term, stable
supply of that material is what’s important. And I think you’ll see the Russians do an agreement,
probably by the second quarter of 2014. And if you look at the marginal costs of reprocessing
tailings and tails, you’re probably looking at north of a $60 spot price for a contract.
UIN: Uranium is currently sitting at around $40 per pound, which isn’t making it an
attractive space to be producing. What price does the market need to see in order to bring
more uranium mines into production?
MK: First off, we should clarify that we’re talking about conventional uranium production. It
depends a lot on the existing infrastructure; so let’s take Africa, for example. You need $75 to
$80 uranium to bring any new uranium conventional production in Africa.
If you want to take Europe, that’s just a non-starter. Australia, you’re looking, depending on
where you want to go, you’re looking at about $65 to $70 per pound, you would need to bring it
on production.
In the US, if you’re looking at any new production, you’re going to probably need $65 to $70
uranium. If it’s ISR in the US, you’re going to need $45, $50. And the one place where you
would, the cheapest price would be the Athabasca Basin.
Only because rates there are literally order of magnitude differences of two times anywhere in
the world. And you still need about $50 for any new production to come online.
UIN: Though the spot prices have dropped, long-term prices have remained relatively
consistent. How can investors use long-term prices to understand the uranium market?

4. MK: For example, look at it this way. In 1960, America was the largest producer of uranium in
the world. It produced over 36 million pounds of uranium. In 2012, America produced less than
3.5 million pounds of uranium, yet they are the world’s largest consumer of uranium. And on top
of that, they import over 95 percent of the uranium they have, that they consume.
That, as you’ll see in our seminar, we talk with the Energy Secretary of America about how this
is one of the riskiest situations in America. And it’s not like this is a small niche market. If the
Russians wanted to, they could pull the plug on 20 percent of the homes in America.
That would be equivalent to the biggest blackout ever in the history of a developed country.
Now, if the spot price of uranium went from $40 to $60, it would make less than a 5 percent
difference to the electricity cost, the total electricity cost. Do you think the Americans are going
to care?
Do you think that the nuclear power plants, the utilities, will care? What they care about is
keeping the lights on!
Whereas if the natural gas price went from $4 to let’s say, $6, you’re looking at over a 30 percent
increase in your electricity bill. The same is not true for nuclear.
UIN: You’ve mentioned natural gas and coal a few times. What is the relationship between
uranium and natural gas or coal?
MK: Well, they’re not tied together. That’s what I’m trying to get at. When you look at coal,
coal and natural gas are tied together because they’re competing against each other.
You see, a coal plant, when you’ve got these, they’re called bi-generational plants, where you
can have a coal plant and a natural gas plant in the same facility.
It would take about an eight- to 12-hour shift to convert from coal to natural gas. So, part of the
reason why coal prices have been so slaughtered in North America is because the natural gas
success of the shale, they’re competing for each other. Right?
Whereas, you cannot convert a nuclear reactor. Nuclear reactors provide 20 percent of base load
power. Even if natural gas went to $2, it still can’t compete with nuclear energy. Like, nuclear
energy is the cheapest form of electricity in the world. Once the power plant is built, it’s the
cheapest form of power. So coal and natural gas are competing, so they’ll be capping each other.
You know, once natural gas gets to about $4 a MCF, it’s cheaper to use coal, so the now those
electric generators are going to switch from natural gas to coal. Once it goes below that, they
switch back to natural gas.

5. UIN: The domestic market in the US for nuclear power is expanding at a very slow rate.
What are the underlying issues causing this?
MK: That’s my whole point. We’re saying that it’s going to be zero growth in North America.
But you still have to feed 104 reactors just in the US, and America imports 95 percent of what
they consume. And the contract that they’ve been importing is expiring; it’s done.
You can’t get enough elsewhere. And now that amount that’s been contracted out to the
Americans from the Russians, the Russians can now go to Saudi Arabia, they can go to China,
they can go to South Korea, they’re going to go to India — nevermind the other ‘stan countries,
the other CIS countries. And now there’s a lot more competitors for the fixed supply.
UIN: So what is the US going to do to? Obviously you’re saying they can’t just turn off all
the lights.
MK: Exactly. They have no choice but to do what? Pay more. Because they can’t produce more
themselves.
UIN: AREVA (EPA:AREVA) secured a $70-million multi-year contract to supply uranium
to an undisclosed US utility. Is this type of transaction indicative of the state of the nuclear
industry in the US?
MK: Yes, definitely. That’s telling you right now that the utilities can’t get the feed, so they’re
buying future contracts. Let’s look at AREVA’s costs. Where is AREVA getting it from?
AREVA’s costs are north of $50, $60 right now, in existing production. And on top of that
they’re having issues with some of their production.
So despite all of these things are; the utilities are now going up to the companies directly to get
offtakes.
UIN: So I guess we’re looking at a race for uranium supply?
MK: This is a race for energy security. First of all, your GDP is directly correlated to your
electricity generated. If your cost of electricity is too high, you cannot grow your GDP. And
every country is well aware that to be a successful country, you need a diversified energy matrix.
You need coal, you need natural gas, you need uranium, nuclear. And then, to keep all the
environmentalists happy, you need a small portion of green energy. Because you’re looking at
three cents for nuclear power. The same amount of electricity generation would cost about 12 to
15 cents for green energy — you’re looking at four or five times the cost.

6. So at the end of the day, when China is now putting up hundreds of billions of dollars to build
this nuclear matrix, the fuel, it’s irrelevant to them. So it’s a major race, and the Americans
already have their nuclear power plants built. So whether they pay $60 is irrelevant to them.
They just need a supply.
So people ask me, “well, what does this mean?” Well, in 2018, if you were to buy uranium today
to secure it for 2018, it’s over $60 right now.
Why would a utility pay over $60 if they didn’t think that it’s going to be harder to get uranium
in the future?
The forward curve is over 50 percent higher than where the spot is today.
Another reason why we’re bullish: I wrote a report about showing how the 2018 future curve
was $68 per pound, US.
Uranium is not something like gold that you can take to the bank and put it in a vault, and you
know, use it when you want to. It’s such a strategic component of America’s energy security. It’s
going to become a strategic metal; it is a strategic metal. And it’s going to become strategic for
China, for Russia, India and Saudi Arabia, and the rest of the world.
UIN: Japan is going to be restarting its reactors at the end of the year; how is that going to
impact demand?
MK: They’ve already made the decision; it’s moving forward. And on our, this is on our
webinar, which I highly recommend people see. The person who’s advising Japan is on our
seminar, and that’s Lady Barbara Judge. And she’s telling you exactly what’s going to happen,
because she’s the one who’s telling them what to do. And it’s going to happen, Japan has no
choice but to do this.
A country cannot afford the highest energy costs in the world and still expect their economy to
be competitive. That’s what it comes down to.

7. Investment Analyst Marin Katusa is the senior editor of Casey's Energy Report, Casey's Energy Opportunities and Casey's Energy Confidential. With a
background in mathematics, Katusa left teaching post-secondary mathematics to pursue portfolio management within the resource sector. He is
regularly interviewed on national and local television channels in North America such as the Business News Network (BNN) and many other radio and
newspapers for his opinions and insights regarding the resource sector. A regular part of his due diligence process for Casey Research includes
property tours, which has resulted in him visiting hundreds of mining and energy exploration projects all around the world. He has been a director of
Copper Mountain Mining since early 2007, which is now Canada's third largest copper producer. Katusa is a citizen and resident of Canada.
Source: Uranium Investing News
About Lakeland Resources Inc.
Lakeland Resources Inc. is a newly formed pure play uranium exploration company focused on
the Athabasca Basin in Saskatchewan, Canada. The Athabasca Basin is a premiere geologic
district for hosting the world’s richest uranium deposits, with a well established mining
infrastructure and politically stable environment for investment. Several significant discoveries
have been made in the Basin over the last several years including: Phoenix (Denison),
Roughrider (Hathor), J-Zone (Fission/KEPCO) and Patterson Lake South (Alpha/Fission).
Lakeland has acquired 100-percent of nine projects covering over 100,000 hectares in the Basin.
Initial exploration will focus on the South Pine, Riou Lake and Otherside Properties where three
priority targets have been outlined for fieldwork and drilling. The Company will benefit from the
substantial historic exploration expenditures incurred on the properties as well as improving
fundamentals for the uranium sector.
For more information, please visit the corporate website at http://www.lakelandresources.com or
contact Roger Leschuk, Corporate Communications at Ph: 604.681.1568 or TF: 1.877.377.6222
or Email: roger@lakelandresources.com