Having just founded her own research company, Mine2Capital, Alka Singh has her sights set on the uranium sector, where she sees deep values in a beaten-down industry. With two major catalysts likely to boost spot prices, M&A activity afoot, new mines coming into production and new companies coming to market, well-positioned investors stand to benefit from what just may be a coming boom. In this exclusive interview with The Energy Report, Singh shares what she sees on the horizon.
The Energy Report: Alka, after years at Rodman and Renshaw and then at Jennings Capital and Dahlman Rose, you started your own shop, Mine2Capital. What made you decide to set out on your own, and what investing philosophy will you use?
Alka Singh: The reason we founded Mine2Capital was to provide trusted information for reliable investments. That was the theme with which we started this company. In the financial markets around the world, it is not always clear to investors which information can be trusted, because some data are massaged to look different from the reality. It is our vision to provide the buyside with carefully researched data and due diligence backed by our expertise in our specific sectors, and we are very careful to disassociate ourselves from any direct or indirect financial benefits from the mining firms themselves. However, we do nurture access to all the top CEOs in our industries. Another aspect of our company is that we endeavor to connect good companies around the world with capital from the financial markets—connecting mines and capital. That is the philosophy behind the company name, Mine2Capital. That's what our goal is.
TER: Will you provide exclusive proprietary research reports to individual buyside clients, or are you preparing reports that you disseminate generally to the buyside?
AS: Yes, all of that. We do provide exclusive valuation and reports for the buyside. If a client wants us to take a look at a company or at an asset, we do the due-diligence for the assets, build financial models and write research reports. Also, there are some companies that we like and we independently cover them and disseminate information in our reports to the buyside as well.
TER: Along that line, will you be doing any buyside activities yourself? Will you be operating any funds?
AS: That will be phase 2 of Mine2Capital. We definitely want to do that as well, but not right this minute. Right now we will be doing due diligence and completing company valuations for buyside clients. In six months to a year, we will be looking at investing as well.
TER: Alka, your own sector expertise is uranium mining. What is your current theme?
AS: Well, the uranium sector had just started to show some life in late 2010 and early 2011 when the unprecedented tsunami and earthquake hit Japan and brought the sector back to low levels in March 2011. Many countries started reducing their nuclear power generation. Japan has since shut down all of its 54 nuclear power plants, some only for maintenance. And Germany has announced a phaseout of all nine of its nuclear plants by 2022. This has had a negative impact on the uranium price, and of course on uranium equities. Ultimately, given its long-term safety record, low-carbon emission profile and its ability to produce low-cost baseload power, we continue to believe that nuclear power generation will play a key role in the electricity supply chain.
TER: If Japanese reactors begin to come back online, what would it mean for uranium consumption and demand?
AS: We anticipate that Japan will begin to restart its nuclear power plants by year-end. The return of these reactors to the global fleet would increase uranium demand by approximately 12%. Another thing that will push prices higher is the end of the US-Russian Highly Enriched Uranium (HEU) Purchase Agreement in 2013. Right now, Russia supplies the world with an equivalent of 24 million pounds (Mlb) of uranium on an annual basis through the down-blending of its nuclear warheads. Globally, there are 435 nuclear reactors that consume about 180–190 Mlb/year of uranium, and world production is currently only 150 Mlb. Through the HEU agreement, Russia currently supplies 13% of global uranium consumption and 45% of U.S. uranium needs.
So the end of the HEU agreement will force us to seek other sources of material at the end of 2013, and that's why we are very positive on the uranium sector, even now. Russia, China and South Korea continue to propose and plan new reactors. Those new nuclear power plants that are supposed to come online in the next 20 years are not being canceled – at least not yet.
Nuclear power remains the only carbon-free baseload source of electricity, and it is producing far more clean power than even wind or solar. In light of this, we are very positive on uranium prices and equities.
TER: So, you are saying the major catalysts for the uranium mining industry would be Japan restarting some of its reactors and the end of the HEU pact in 2013.
AS: That is correct, George. Those are the two biggest catalysts. Equities are always valuing events 12 months in advance. So, if the HEU agreement expires in late 2013, we should see an increase in uranium prices later this year. We also expect uranium equities to react positively in response to that increase in uranium prices.
TER: From what you have just said, I would surmise that you believe the uranium mining equities market is at value levels currently.
AS: It is. You are absolutely right. The uranium sector right now is definitely a value sector.