Global uranium supply seen increasing in H2
Sep 30. Mining Weekly
By Esmarie Swanepoel
Global uranium supply is expected to increase in the second half of 2010, supported by strong production coming from Kazakhstan and the Ranger and Olympic Dam mines, in Australia.
The continued ramp-up of Paladin Energy’s Kayelekera project, in Malawi, would also contribute to increased uranium production in the last six months year.
Energy Resources Australia owns the Ranger project, while BHP Billiton operates the Olympic Dam mine.
But equity research company Resource Capital Research (RCR) said on Thursday that the increased global production would be partially offset by a potential decline in output in Niger, where French nuclear firm Areva has withdrawn expat staff, following a series of kidnappings in the African country.
Kazakhstan is forecast to increase its production to 47-million pounds in 2010, up 30% from 36-million pounds in 2009 and could potentially expand output to 78-million pounds of uranium oxide by 2018.
RCR noted that at the recent World Nuclear Association conference in London, Kazakh officials indicated that they would expand production capacity only so far as demand and price warranted.
The research firm said that currently, there were 440 nuclear power reactors in operation and 59 under construction. There are also 493 new nuclear reactors planned or proposed globally as of August, up from 435 at the end of December.
China alone is planning more than 150 new nuclear reactors, RCR stated.
“With stronger global production anticipated in the second half of the year, there is potential for the spot price to fall back slightly though we expect the long-term price to remain well supported on strategic inventory purchases from China, India, Japan and Germany,” said RCR MD John Wilson.
The uranium spot price was trading at $45,50/lb, up 14% from three months ago, and compared with $44,50/lb at the start of the year.
The fund implied price (FIP) is $47,50/lb, which Wilson said compared with the $46/lb recorded in January this year. “The FIP has generally been a good leading indicator of near term spot price performance.”
The uranium spot price is expected to find a floor between $45 and $50/lb, said Wilson.
He said the gradual downward drift in spot and contract prices over the past 12 months reflected, in part, the growth in new mine supply from Kazakhstan’s projects.
Wilson added that the recent price influences driving the spot market up to $48/lb were not entirely clear, though traders point to purchases from major producers.
Utility purchases remain discretionary though timing of demand from long-term Chinese inventory build remained a factor and would continue to influence short-term market trends, as would, increasingly, Japanese and Indian utility purchases.
Wilson said that the World Nuclear Associated expected the market to remain in modest surplus through 2013/14.
The long-term contract uranium price is $60/lb, up from $58/lb three months ago. It is down from $61/lb January this year, though has been relatively stable since peaking at $95/lb from May 2007 to March 2008.
Meanwhile, RCR reported that that the market valuation for Australian companies with one or more uranium projects have been lower than their Canadian counterparts.
The market valuation for Australian companies was up by 18% over the past month, and by 29% over the past three months. It was also up by 18% over the past 12 months.
This compared with the Canadian uranium companies that recorded a 22% increase in market valuation over the past month, a 22% increase over the past three months, and a 43% increase over the past 12 months.
In the past month, the uranium mining majors have had mixed share price performance, with Cameco up 5%, Denison Mines up 14%, Uranium One remaining unchanged, Energy Resources of Australia (ERA) up 1% and Paladin down 4%.
The Merrill Lynch Uranium Equity Index is up 4% over the past month, up 9% over three months and down 17% over the past 12 months.