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Uranium Week: Uranium Supply Risk From Pandemic

Weekly Reports | Dec 22 2020

This story features LOTUS RESOURCES LIMITED. For more info SHARE ANALYSIS: LOT

While the uranium spot price continues in a narrow trading band, Cameco places its North Saskatchewan operations on care and maintenance. 

-Cameco suspends Cigar Lake operations
-Positive UK government nuclear initiatives
-Uranium spot price remains range-bound

By Mark Woodruff

Cameco, the world’s second largest uranium producer, suspended operations at its Cigar Lake Mine on December 14. This was after finding six positive covid cases in its North Saskatchewan operations. 

In an official statement, the company noted a "significant negative trend" in Saskatchewan case numbers, which has contributed to uncertainty over the mine's operations. That uncertainty was attributed in part to a lack of access to qualified staff, due to a shrinking number of available workers resulting from self-isolation, absenteeism and pandemic-related disruptions to transportation.

The company stated “Our deliveries to date have not been materially impacted by covid-19, nor do we expect there will be a material impact on our remaining 2020 deliveries.”

Cameco CEO Tim Gitzel said that due to the suspension, the company would increase purchases in the market to secure uranium needed to meet sales commitments. “Covid-19 has taught us many lessons, including that the pandemic is a greater risk to uranium supply than to uranium demand".

This year’s curtailments of primary uranium production due to covid represent the latest development in a long-run trend toward an increasingly restricted supply base, explains industry consultant TradeTech.

While previous reductions to planned production have been attributed to oversupply and persistently low uranium market prices, these most recent reductions have periodically intensified spot price volatility. TradeTech believes this may accelerate the realignment of supply and demand.

Country news 

An Energy White Paper published last week in the UK, states that nuclear and advanced nuclear technologies have a key role in achieving goals to carbon neutrality and in realising a green economic recovery. The White Paper was published by the UK Department for Business, Energy, & Industrial Strategy.

The Department’s intent was further illustrated by a statement that formal negotiations will begin with the French multinational electric utility company EDF over the funding of the proposed Sizewell C nuclear power station. This is with the caveat that no decision has been taken to proceed with the project. 

One of the key contingencies for a positive decision is continued progress at Hinkley Point C, and ensuring that lessons learned will benefit the new project.

Hinkley Point C is a project under construction in England, to build a nuclear power station which is slated for completion around 2025-2026.

Company News

ASX-listed Lotus Resources ((LOT)) has identified multiple exploration target areas, all within a short trucking distance of the Kayelekera Mine Site in Namibia.

Managing director Eduard Smirnov stated “the company’s major focus for 2021 is to progress the recent positive scoping study towards a feasibility study.” He went on to say “this will position Kayelekera to be one of only a handful of projects globally capable of rapidly and effectively recommencing production to meet the growing demand and shortfall in uranium supply expected in the coming years.”

Uranium pricing 

TradeTech's Weekly Spot Price Indicator is US$30.20/lb, up US$0.35. This reflects the increasing upward pressure on the price due to the short-term impact expected from the temporary shutdown of the Cigar Lake Mine.

In 2020, the Weekly Spot Price  Indicator has risen nearly 22%. While the indicator continues to float in a narrow one dollar-per-pound band, recent policy developments combined with further curtailments to planned production have pushed the price up 3% in the last three weeks.

The average weekly uranium spot price for 2020 is US$29.70/lb, US$3.86/lb above the 2019 average.

TradeTech's term price indicators are unchanged at US$33.75/lb (mid) and US$37.00/lb (long). 

Aside from limited buying interest that emerged in the US this week, US utilities remain slow to enter the term uranium market, according to TradeTech.

The resolution of the Russian Suspension Agreement was expected to result in US utilities coming to the term uranium market now that there is clarity on the amount of Russian-origin material that can be imported. 

However, many US utilities are grappling with the impact of covid on their 2020 and projected 2021 cash flow and near-term operations. Consequently, most US utilities continue to take a "wait and see" approach to term uranium contracting.

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