February 29, 2012

Cameco CEO Warns Of Squeeze In Uranium Supplies In 'Very Near Future'

Published on Wednesday February 29 2012 (AEST)

Cameco Corp.'s top executive is warning of an impending uranium supply squeeze as projects are delayed or cancelled and global demand for electricity continues to grow despite the Fukushima nuclear crisis almost a year ago.

Last year, world consumption for uranium hit 165 million pounds, far outpacing the 143 million pounds produced, CEO Tim Gitzel told an investor conference Tuesday.

And that gap is only going to widen as 96 new reactors come online by 2021, Gitzel said, "which raises the big question: where is this production going to come from?"

Cameco has not wavered from its goal of doubling uranium production to 40 million tonnes by 2018. But because mines are so complicated to build, it's tough for companies like Cameco to respond swiftly to demand swings.

"Uranium mines in general are difficult to bring on at the best of times and now, with the lower uranium prices, we're seeing (that) delays and cancellations of projects are becoming the norm as proponents are unable to meet feasibility tests," said Gitzel.

"As a result, we believe that the industry could face significant supply challenges and widening supply gap issues in the very near future."

Demand for uranium from countries like China, South Korea and India is expected to be "astounding" in the future, despite the pall cast by the Japanese nuclear disaster in March 2011.

An earthquake and tsunami caused the Fukushima Daiichi plant's cooling systems to fail and radioactive material to be released. The incident prompted Germany, which represents five per cent of global nuclear generation capacity, to abandon that source of power and other countries to slow their expansion plans.

Japan itself, which represents 12 per cent of worldwide nuclear generating capacity, only has a few reactors operating, but Gitzel said Cameco expects the remaining ones to be brought online starting later this year.

"Fukushima or no Fukushima, the world energy situation remains unchanged. Huge quantities of huge, reliable and affordable electricity will be needed to meet future demand," he said.

Since the 1980s, global electricity consumption has tripled and is expected to more than double again over the next two decades. Nearly two billion out of the world's seven billion inhabitants don't currently have access to electricity, Gitzel said.

Economic juggernaut China has 26 power plants under construction and "many dozens more planned for the future."

And India has announced plans to grow its nuclear power capacity from 5,000 megawatts to 63,000 megawatts by 2030.

"You can take that for what it's worth," Gitzel said. "But even if it's half that much, it's enormous growth."

All that growth is good news for Cameco and the uranium industry as a whole, he said.

"More reactors means more demand for uranium."

But there are some short-term headwinds. Cameco said during its fourth-quarter conference call earlier this month that it expects consolidated revenue in 2012 could be as much as five per cent lower than it was in 2011 due to lower sales volumes in the fuel services business and lower uranium prices. That should be partially offset by higher volumes in its electricity business.

Its profits in the final three months of 2011 grew by 29 per cent to $265 million and quarterly revenue jumped 45 per cent to $977 million from $673 million.

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