August 29, 2013

Uranium Price to Bounce back

Published on Thursday August 29 2013 (AEST)  

NAMIBIAN uranium producer Paladin Energy and Namibian uranium explorer Deep Yellow have added their support to industry predictions that the depressed uranium price must soon recover. Interviewed after his presentation to the Africa Down Under conference in Perth, Western Australia, Paladin Energy CEO John Borshoff said his firm would survive to benefit from that recovery and that he would still be in place as CEO. 

 That is despite a series of setbacks that have driven the Paladin share price to a 10-year low of C$0.53 (R5.22) on the Toronto Stock Exchange and forced management to raise funds earlier this month through placing 15% of the firm at a 30% discount to the then ruling share price. Paladin operates the Langer Heinrich uranium mine, near Swakopmund in Namibia, and the Kayelekera uranium mine in Malawi. The spot price of uranium oxide plunged to about $35 a pound this month, at which level estimates are that half of the world’s uranium producers are unprofitable. Despite this, uranium producers maintain that the underlying fundamentals of the sector remain positive. 

Deep Yellow MD Greg Cochran told Business Day the uranium spot price should be "deep in the $40s by the end of this year and I would be very surprised if the price does not stand around $60 a pound by the end of next year". On August 6, Chris Sattler, CEO of JSE-and Toronto-listed Uranium One, which is about to be taken over by Russian state nuclear firm ARMZ, said in his review for the June quarter: "The longer-term supply and demand fundamentals going forward continue to look favourable. With the end of the US-Russia HEU (highly enriched uranium) agreement this year, and continued growth in demand from emerging markets, the market is expected to become increasingly dependent on new mine production. "Decisions by producers to abandon or delay production expansions and mine developments or to reduce current production levels are expected to impact supply and demand balances in the coming years." Mr Borshoff said: "The Fukushima effect has been greater than people thought. The shortages (in supply) were supposed to come in about 2014 or 2015, but some of the utilities have subsequently pulled back on some of their deliveries, which has basically added a couple of years into the system. 

Now the shortages are looked at arriving about late 2015 or early 2016. My argument is you don’t arrive at that shortage year and, all of a sudden, prices rise. … There’s a two-year time lag between needing to contract for use in two years’ time." According to Mr Borshoff, the uranium price had been affected by new supply from producers such as Paladin and Uranium One, and had also been manipulated by traders dealing on the spot market, but these volumes were "minimal amounts compared with what is really needed". He said the true state of the uranium market would be revealed when the "term market opens up, which it has not done yet". 

About 80% of all uranium is supplied through "term" contracts with major global utilities and the "term" price is typically considerably higher than the spot price. Mr Cochran said about 25-million pounds of uranium oxide had been sold this year on the spot market out of a supply of about 100-million pounds. "When you add up the impact of the lack of new mines because developers cannot raise funds; the restart of the reactors in Japan and end of the HEU programme, you are looking at a 250-million-pound cumulative deficit in uranium supply by 2020."



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