Uranium Week: Production Cuts

This story features PALADIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: PDN

By Greg Peel

Australia’s listed uranium miners provided production reports last week for the March quarter. Paladin Energy ((PDN)) posted a 3% increase in uranium production at its Namibian mine over the previous quarter while Rio Tinto ((RIO)) posted a 7% reduction from the previous quarter from its Australian and Namibian operations, albeit representing a 57% increase on the March quarter last year.

BHP Billiton ((BHP)) posted a 38% increase in production at its Australian mine for the nine months to March over the same period last year, but the company took the opportunity to announce it has cut mining of all its major commodities bar metallurgical coal.

The world’s largest producer of uranium – Kazakhstan – has no plans to cut production but has announced the establishment of a “uranium fund”.  The country’s state-owned producer intends to deposit material into the fund for the next several years in anticipation of higher prices in the future.

Canadian producer Cameco is another company that would like to see higher uranium prices. Amongst the various production updates last week, news that Cameco is to shutter its Rabbit Lake mine, resulting in 585 lost jobs and reducing the company’s production profile by 5mlbs, had the greatest impact on the market.

Cameco suggested it will now take a more measured approach to future production, which includes slowing down the pace of expansion at the world’s biggest uranium mine – Cigar Lake – thus holding off on reaching full capacity. The company will instead focus on controlling costs while awaiting higher uranium prices.

The news came a week after the spot uranium price plunged over 10% as frustrated traders were forced to sell into a lack of any real buying interest. The removal of a large chunk of global production had traders scrambling back the other way last week. Utilities were spotted earlier in the week on the buy-side, industry consultant TradeTech reports, but the rush was on when the Cameco announcement hit the wires.

By week’s end ten transactions totalling 1mlbs of U3O8 equivalent traded hands in the sport market – a considerable jump on transaction volumes of the past several weeks. As a result TradeTech’s weekly spot price indicator has jumped back 8%, by US$2.10 to US$27.60/lb.

Two transactions were reported last week in term markets, totalling 500,000lbs U3O8. TradeTech’s term price indicators remain unchanged at US$29.90/lb (mid) and US$43.00/lb (long).

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