October 20, 2010

Supply Crunch Signals "URANIUM BOOM"

Published on Wednesday Oct 20 2010

GOLD is justifiably hogging investors' attention at the moment, but the uranium market is looking interesting, judging by presentations from uranium producers at recent investment conferences.

Executives such as Paladin Resources CEO John Borshoff (presenting at the Africa Down Under conference in Perth, Australia) and Denison Mines CEO Ron Hochstein (addressing the Modern Energy Forum in Denver, in the United States) reckon the uranium price is about to start moving because of a looming supply crunch.

There are two key factors they maintain will trigger that crunch. While there’s no shortage of the metal worldwide, there’s been a dearth of successful new uranium mining companies able to supply it. That’s due to under-investment in the sector, because the uranium price has been so low for so long while many of the companies that have entered the business have made a mess of it.

Borshoff loves to rub it in on that point, emphasising how Paladin has successfully developed two mines over the past five years – Langer Heinrich (in Namibia) and Kayelekera (in Malawi) – while a string of its competitors have either failed outright or are performing way below expectation.

South Africa provides two classic examples.
Uranium One failed outright with the development of the Dominion Mine, against which it took a $1,8bn impairment charge when it shut it down last year. And First Uranium has run way behind on its production schedules at Ezulwini and its Mine Waste Solutions and is still in business mainly because it was bailed out financially by shareholder Simmer & Jack Mines.

“This is a highly complicated metal to produce. People just don’t seem to understand the complexities of it,” says Borshoff.

But the crunch factor is probably going to be the end of the highly enriched uranium (HEU) deal through which uranium has been provided to the nuclear power generating industry from decommissioned Russian nuclear weapons.

That secondary supply is what has kept the uranium price depressed for the past 20 years, bar the short-lived spike in 2007/2008. Hochstein says that deal ends in 2013 and it’s not going to be renewed, which will leave a large gap in the market.

Hochstein reckons there are 440 nuclear reactors currently operating that require 184m lbs of uranium oxide (U308) to keep them running. World supply of newly mined uranium oxide currently sits at around 130m lbs/year.

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