Uranium Week: Price Stabilising?

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED. For more info SHARE ANALYSIS: ERA

By Greg Peel

Early May saw the relentless fall in the spot uranium price stall briefly before another drop, then another stall two weeks ago. May also saw the spot price trading under the suggested average cost of production level of US$30/lb. With a hint of potential price stability now creeping into the market, last week the buyers were a little more interested. The result was a rare up-tick in industry consultant TradeTech’s spot price indicator by US25c to US$28.50/lb.

Four transactions were conducted in the spot market last week totalling 500,000/lbs of U3O8 equivalent. Producers sold, utilities bought, and intermediaries participated on both sides. Last week market participants were gathered in New York for the annual World Nuclear Fuel Market conference. In days gone by the uranium market would go quiet over this week and then pick up with enthusiasm the following week as attendees returned to their desks.

Industry conferences often generate enthusiasm as refreshments shared by the likeminded often help in “talking up” market prospects. But this year’s conference was a more sanguine affair, with optimism hard to engender no matter how many refreshments were on offer. The focus was on the future of the uranium market and those operations around the globe which TradeTech calls pivotal in determining that future.

TradeTech’s “Pivotal Projects” are those which are large and on the bottom half of the cost curve or of strategic value otherwise. They are Cameco’s Cigar Lake in Canada, China General Nuclear Power Group’s Husab project in Namibia, AREVA’s Imouraren project in Niger, Energy Resources of Australia’s ((ERA)) Ranger Deeps in the Australia’s Northern Territory, and, in a word, Kazakhstan.

After a decade of setbacks, Cigar Lake, the world’s second largest deposit after BHP Billiton’s Olympic Dam, is producing. With an annual production target of 18mlbs per annum after full ramp-up, and grades up to 100 times the global average, Cigar Lake has the potential to displace dozens of smaller producers, TradeTech suggests.

Husab is not dissimilar, given vast reserves, but the project lacks infrastructure as yet hence significant capital costs must be applied. Production is imminent, subject to financing, which shouldn’t be an issue given CGNPG has attracted favourable bond rates. The project nevertheless also requires favourable market conditions.

Conditions are currently not sufficiently favourable for AREVA. The Imouraren project also offers vast deposits and large production potential and has the capacity to elevate Niger to the position of globally significant uranium producer, but the project is now delayed pending an improvement in the market.

ERA’s above-ground Ranger mine has now received government approval for a progressive restart after a leach tank failure shut the mine in December. But Ranger’s future lies with the underground Ranger 3 Deeps project which potentially offers extensive reserves at a known longstanding production site.

The government-owned Kazatomprom mining company enjoys strong political, and thus financial, support given uranium’s significant contribution to the Kazakhstan economy. Katatomprom's options sit in the lower half of the cost curve as a result, and Kazakhstan represents a controlled 30-35% of global production.

Given their large size and low cost/strategic importance, these Pivotal Projects are less sensitive to prevailing uranium prices than other projects. However, as AREVA’s decision in Niger attests, the current historically low level of uranium price means even the biggest projects are vulnerable. “Should one or more of them not prove economically justifiable,” suggests TradeTech, “there would be a notable impact to the market”.

TradeTech's term market price indicators were unchanged last week at US$31/lb (mid) and US$45/lb (long).
 

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