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Looming 15% uranium market supply gap could spur price revival – Cameco

Looming 15% uranium market supply gap could spur price revival – Cameco

Photo by Cameco

4th June 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – An emerging 15% supply gap could signal a prolonged upturn in the uranium price through to 2024, Canadian uranium major Cameco said on Thursday.

A decline in secondary sources of yellowcake was forcing the market to increasingly rely on primary suppliers, which, when coupled with unprecedented growth in the nuclear reactor industry, foretold improved market conditions over the medium and long term, investor relations director Rachelle Girard told the Cantor Fitzgerald Annual Global Uranium Conference, in New York.

NYSE- and TSX-listed Cameco expected the market to expand at 4% a year to about 230-million pounds of uranium oxide a year by 2024, a far cry from today’s output of about 140-million pounds, excluding projects under development.

The company was the world’s largest publicly traded uranium producer and owned and operated the largest uranium mines in the prolific Athabasca basin of Saskatchewan, from which the company produced about 16% of the global supply.

Worldwide, about 63 new nuclear reactors were under construction, but the world’s insatiable need for electricity could see a further 81 more nuclear reactors come on line in the future.

The global uranium market had been stumped by Japan's March 2011 Fukushima Daiichi nuclear disaster, which prompted all nuclear reactors to be shut down in Japan. The natural-disaster induced crisis had created significant global uranium market backlash and public opinions about the safety of using nuclear-derived power took a beating.

This had eroded demand and caused a global supply glut, as the Japanese nuclear fleet remained largely offline.

Girard said Cameco was currently looking to lock-in future contracts, but noted that the market was not currently entertaining new contracts, as high inventories and the soft demand were affording buyers the opportunity to wait and see whether prices would fall further.

Contracts provided the company with revenue protection from current market uncertainty. The volatile uranium price had traded in a ten-year band of just under $140/lb in 2007 and a $30/lb low last year.

Cameco saw $40/lb as a floor for the uranium price and noted that a price of at least $70/lb would be required to incentivise it to invest in new development projects.

MARKET OPTIMISM
Girard said Japanese reactor restarts could kickstart uranium demand growth and start clearing the excess market supply.

However, the low-price environment was keeping investment low in new uranium development projects, which could see the primary uranium producers finding it difficult to keep up with demand, once the market started to rebound.

“The world needs four more Cigar Lakes to keep up with future demand,” Girard stressed.

China would account for 57 new nuclear reactors by 2024, while Indian nuclear-sector growth was poised to take off with 16 new reactors expected to be built by then.

Cameco’s recent C$350-million deal to supply more than seven-million pounds of uranium concentrate to India had opened the door to a significant previously inaccessible market, Girard noted.

Other developing regions such as the Middle East, Southern Africa and South America were also expected to increasingly draw on the demand side.

And when the inevitable global market improvement started gaining sustained traction, Cameco would be waiting in the wings, able to quickly ramp-up output to about 30% of the global output by 2024.

“Cameco has the pounds in the ground when the market calls for it,” Girard said.

The company’s inventory comprised 429-million pounds of proven and probable uranium reserves and extensive mineral resources. Cameco expected to produce between 25.3-million pounds and 26.3-million pounds of uranium oxide this year.

The company’s crown jewel – McArthur River – was the world's biggest high-grade uranium mine with an average ore grade of 14.87% uranium oxide. Grades were 100 times the world average, which meant the operation could produce more than 18-million pounds of uranium a year by mining ore at a rate of only 150 t/d to 200 t/d.

Recently completed and future expansions could also see the Key Lake mill, 80 km south-west by road, where McArthur’s ore was blended for processing with low-grade ore in stockpile, ramp up to 25-million pounds of uranium a year.

The company had also, just last month, declared commercial production at the world’s second-largest high-grade uranium mine, Cigar Lake. The eight-million-pound-a-year operation was considered to be among the world’s most technologically challenging deposits to mine and required the underground ore to be artificially frozen to improve underground mine stability, prevent water inflow and improve radiation protection.

Cameco expected Cigar Lake to ramp up to its full production rate of 18-million pounds by 2018.

The company's TSX-listed stock had traded in a 52-week range between C$16.73 and C$23.26 apiece, and on Thursday changed hands at C$19.23.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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