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Uranium Skyrockets to $113/lb on Supply Shortfall

By Jon A. Nones
10 Apr 2007 08:20 PM

LAS VEGAS (ResourceInvestor.com) -- Today sources confirmed the spot uranium price has jumped from $95 to $113 per pound. This 19% jump is the largest price increase on record, surpassing the previous record of 7% set in October 2006 after Cameco’s Cigar Lake flooded.

Eric Webb, VP of Information and Technology for Ux Consulting Company, previously told Resource Investor that the price jump in October was the largest weekly gain seen on record. Although UxC has not yet updated its pricing info, analysts at the inaugural Uranium Stock Summit confirmed the $18 price jump and told listeners there is more of this to come.

Uranium at “$200/lb is not unrealistic,” said Doug Casey, chairman of Casey Research, presenter of the Summit. The price has risen about 15-fold since 2001.

On Friday, April 6, Mestena Uranium LLC, a uranium producer based in Corpus Christi, Texas, offered 100,000 pounds of yellowcake in an auction, catapulting the price of uranium. Privately held Mestena, which has a mine in Texas, produces about 1 million pounds a year.

“Uranium is going higher, stocks are going higher,” said Casey. “You have plenty of time – all the money has not been made.”

Casey said the public is not yet involved. When people do catch on, the sector will get hotter and many more people will enter the market than the last time around, he added.

“This will be a bigger commodities bull market than we had in the 70s,” said Casey, adding that uranium will continue to reap the rewards.

Mike Gunning, President and CEO of Triex Minerals [TSXv:TXM], told a story of increasing shortfall in uranium supply. He said mines produced about 94 million pounds last year with demand at about 175 million pounds - a 45% shortfall.

He said stockpiles from Russia and the U.S. amassed for nuclear weapons have made up the difference thus far, but “as we know, inventories won’t last forever.”

Russia will not renew its uranium agreement to supply the market with its stockpiles after 2013 as the country aims to sell reactors with fuel to emerging markets.

Russia’s Atomstroiexport is the general contractor for Iran’s Bushehr nuclear facility, which will run on uranium supplied by Russia. Mohammad Saedi, deputy head of the Iranian Atomic Energy Organization, said today that the Bushehr nuclear power plant will be commissioned by March 2008.

In addition, hedge funds currently hold 15-20 million pounds of supply, equivalent to 10%. Gunning said this is not significant yet, but may become so as more hedge funds take notice of the market.

About 16% of the world's electricity came from 440 nuclear reactors last year, according to the World Nuclear Association. There are currently 20 plants under construction with plans for 72 more in Russia, China, India and Japan. In the U.S., 16 companies have submitted proposals for 25 new plants. Gunning said all of these new reactors will need about 400,000 more pounds of uranium per year when operational.

This year, 435 plants will require about 150 million pounds of uranium. However, Gunning sees at least a 10% decline in mine production in 2007 due to project delays and operational difficulties.


Source: Uranium Information Centre

According to Gunning, the lack of new uranium deposits will be the main driving force behind the bull market looking ahead. He pointed to 20 years of little to no exploration for new resources.

He said the last major discovery was the McArthur River Mine, owned 70% by Cameco [NYSE:CCJ; TSX:CCO] and 30% by AREVA Resources, in 1988. Prior to McArthur was the discovery of Cameco’s Cigar Lake in 1981, Rio Tinto’s [NYSE:RTP] Ranger Uranium Mine in 1978 and BHP’s [NYSE:BHP] Olympic Dam in 1976.

The top 12 uranium mines account for more than 70% of total world supply. The No. 1 producing McArthur deposit mined 18 million pounds in 2006 while No. 2 Ranger mined 11.2 million pounds. Olympic Dam, the world’s largest uranium deposit at nearly 1 billion tonnes, produced about 7.5 million pounds last year.

However, a flood this spring at the Ranger mine in Australia caused by high levels of rain water is also expected to reduce the mine’s output by about 25%. McArthur is hitting challenges with expansion and grades at Olympic Dam are falling.

Cigar Lake was originally forecast to produce up to 18 million pounds starting in 2008, equivalent to more than 10% of global uranium demand and more than 15% of 2006 global uranium production. By 2011, 40% to 50% of new production is slated to come from Cigar Lake.

In a conference call late last month, the company postponed production until 2010. The capital expense has risen from $600 million to $1 billion.

But “Uranium is not rare, there’s a lot of it out there in the ground,” said Gunning.

Canada, Kazakhstan and Australia hold 60% of the world’s resources. He said Canada’s Athabasca Basin is a major area of interest for uranium explorers, noting discoveries of AREVA’s Midwest Lake and Shea Creek and Cameco’s Millennium, in addition to Cigar Lake.

However, Gunning concluded that even with more supply coming on stream, and taking in part the time it will take to develop these new projects, it will not be enough to make up the shortfall from rising demand.

“The uranium price is not out of control - it’s just getting back to where it was,” adjusted for inflation in the 70s, said Gunning.

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