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Uranium Week: Squeeze Is On

Weekly Reports | Apr 22 2020

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

The uranium spot price continues to soar on ongoing supply curtailment.

-Cameco extends Cigar Lake shutdown
-Spot uranium price up 35% in a month
-Rio Tinto records record uranium production

By Greg Peel

Last month Cameco shut down its Cigar Lake mine – the world’s largest operating uranium mine – for a month, as directed by the Canadian Federal and Saskatchewan state governments for the sake of worker safety. Last week Cameco announced the shutdown would be extended – indefinitely.

The twist in the tale is Cameco has stood as a major buyer in the uranium spot market for some time now after first shuttering some operations when spot prices fell below the cost of production, and more recently shutting up shop on virus fears. The less Cameco produces, the more it has to buy in the market to satisfy existing delivery contracts, and the more it buys, the higher the spot uranium price rises.

This fact is not lost on sellers of uranium, which currently are mostly traders given little uranium is being produced. Traders also dominate the buy-side as they attempt to exploit obligatory demand from producers such as Cameco, and this equation has resulted in a 35% jump in the uranium spot price in less than a month.

Utilities? There’s a smattering of demand from end-users, but realistically there is no sign of urgency in needing to secure product before prices run up any higher.

This week saw speculators caught out in the WTI crude oil futures market. Speculators are dominating the uranium market while producers can do nothing about it, such as restart production, while virus lockdowns persist.

Last week saw significant volume in the spot market, with 22 transactions concluded totalling 2.6mlbs U3O8 equivalent, industry consultant TradeTech reports. TradeTech’s weekly spot price indicator rose US$2.75 to US$32.25/lb, up an average 8% per week over the last month and 25% year on year.

Unlike the oil market, the uranium market has not suffered demand destruction. On the contrary, nuclear power is flowing freely as an essential service at this time, with nuclear plants taking precautions but already quite familiar with the concept of worker safety. Yet utility demand has not jumped.

There were a couple of small transactions completed in the mid-term market last week, TradeTech reports, for just beyond the spot delivery window. TradeTech’s term price indicators remain at US$31.00/lb (mid) and US$34.00/lb (long).

How long can this speculator-driven spot price rally last? Ask the virus.

Rio Tinto

In December 2013, a leach tank failed at the Ranger Mine in Australia’s Northern Territory, owned by Energy Resources of Australia ((ERA)), which itself was then two-thirds owned by Rio Tinto ((RIO)). The failure shut down mining and a clean-up began.

Since that time ERA has been producing uranium from stockpiled ore. Last year the company announced a rights issue to raise the funds required for the rehabilitation of the Ranger project area – a move supported by its majority shareholder. Following the completion of that rights issue, Rio Tinto, having recently offloaded its interest in the Rossing uranium mine in Namibia, moved to an 86% shareholding in ERA.

As a result, Rio reported record uranium production in the March quarter, up 5% year on year, but simply because of the increased shareholding.

Rehabilitation at Ranger is expected to be completed in six to seven years.  

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