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Uranium Week: The Nuclear Conundrum

Weekly Reports | Feb 11 2020

Lack of demand continues to drag on uranium prices despite ongoing production curtailments, yet nuclear energy remains a matter of cost.

-Uranium spot prices drift lower
-Production curtailments ongoing
-Nuclear power a costly option

By Greg Peel

The world’s largest mining investment conference, now in its 26th year, began in Cape Town last week. Given the tenuous state of South Africa’s energy supply, the focus this year of the “Investing in African Mining Indaba” is on a transition from coal toward renewable and clean energy resources to deal with power shortages across the African continent. (Indaba means meeting.)

The five-day conference brought together representatives from 94 countries and regions, including more than 38 ministers, under the theme "Optimizing Growth and Investment in the Digitized Mining Economy."

The CEO of the Minerals Council South Africa said at the conference the Council fully supports a transition from coal to non-fossil fuel forms of power generation such as wind and solar power and, where cost is not prohibitive, nuclear power.

“Where cost is not prohibitive” underscores the dilemma facing the global nuclear power and uranium mining industries at present. The US experience is one of US uranium miners being unable to compete with cheaper imports from the likes of Canada and Kazakhstan, with uranium prices near historically low levels. Yet the US nuclear power industry cannot compete with gas-fired and (subsidised) renewable power, despite historically low uranium prices.

Resolution Unclear

As the US government throws the ball to various departments to try to figure out a solution to the problem with a focus on national security, major global uranium producers Cameco and Kazatomprom continue to curtail production in order to support prices.

Canada’s Cameco produced 9mlbs U3O8 in 2019, -2% down on 2018, as the Cigar Lake mine remains shuttered. The company forecasts production of 8.3mlbs in 2020.

Cameco continues to purchase material in the spot market to satisfy contract obligations, given spot prices remain below the cost of marginal production. Yet the company purchased less than it had planned in 2019, choosing to draw down some inventories. This suggests Cameco has a certain spot price tolerance, which is critical given the company’s purchases are significant in supporting global prices.

Damned if you do. Cameco plans to purchase 20-22mlbs in 2020.

Kazakstan’s mostly state-owned Kazatomprom reported 2019 production in line with its commitment to a -20% cut from previously levels, which is also intended to support global prices.

One wonders how this conundrum can ever resolve itself.

Sellers in the uranium spot market weren’t waiting to find out last week. Lack of demand early in the week forced sellers to chase down prices to week’s end. Industry consultant TradeTech’s weekly spot price indicator has fallen -US25c to US$24.65/lb.

TradeTech’s term price indicators remain at US$28.25/lb (mid) and US$33.00/lb (long).

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