.comment-link {margin-left:.6em;}

Saturday, December 01, 2007

Rechecking uranium

Ok, so it's time to take a look at what's going on with the [non-weapons grade] uranium market: supply and demand to see if I'm still happy with my investment in Strathmore Minerals.

Paladin claims to be the only uranium mining company to achieve their 2008 forecast. And even Paladin had to struggle with problems in Namibia.
Commenting on market movements in the third quarter, [Paladan's founder John Borshoff] notes that "July to October have been very interesting months, confirming Paladin's long-held belief that uranium shortages are assured".

He says it is clear the global supply ramp-up will take longer than expected, while the demand for nuclear energy and, therefore, uranium, remains healthy. [emphasis added]
Borshoff believes the uranium market will have a long-term supply shortage and that the industry is in disarray and will likely continue to be that way for years. Russia, India, and China are going to be competing with the West for uranium. India right now is effectively shutting down reactors for lack of fuel, but that's because no one will sell to them, not because of any truly critical shortage.

Borshoff says that the industry needs to find an additional 150 million pounds of uranium within the next 12 years to meet demand.

It's worth noting that Paladin's costs in the mines discussed in the article are $19/lb to $23/lb. That's roughly in line with Strathmore Minerals' costs for many of their mines. I don't want Strathmore to be a high cost provider because if there was any sort of downturn, they could get priced out of the market.

Neal Froneman, CEO of Uranium One, predicts the price of uranium will be $150/lb within the next year due to supply/demand issues.
"The fundamentals are better than six months ago. Production is not reaching levels that were expected and demand is increasing", he said.
The article mentions that Cameco reduced output from the Rabbit Lake mine due to increased water flows, but when you look at the details, I think that particular incident is a non-event. The water is seeping in at a rate that would take two days to fill an Olympic sized pool, which is significant, however...
The company has the ability to get the water out, but a surface pump is in the middle of an upgrade so Cameco is scaling back work in some areas of the mine.
There's the question of whether this is actually correct. Without additional details, I'd take it on face value. The upgrade should be done in a week, they've had "similar situations in the past and dealt with them successfully." The mine should produce a bit less than 4 million pounds this year.

Another article about Froneman is here. It mentions the shortages of sulphuric acid needed in uranium milling. We saw this with the delays expected in Kazakhstan due to a lack of sulphuric acid.
Uranium One's stock had taken a beating from investors over the past month after it released lower production forecasts, owing to start-up problems at its Dominion mine, in South Africa, and sulphuric acid shortages at its Kazak operations.
China has been dealing with Kazakhstan to get more uranium. China's is investing in a Kazakh uranium mine while Kazakhstan is investing in China's nuclear power industry. If I understand that correctly, what's really going on is that China will essentially be buying uranium from Kazakhstan in exchange for part ownership of China's power industry. Note that China is planning 40 new reactors by 2020 and wants to line up the uranium well in advance. To start up a nuclear plant requires around a million pounds of uranium, so there's about 40 million pounds of new demand right there.
Analysts in Beijing say the urgency for wrapping up long-term uranium contracts around the world is partly driven by the potential competition with Japan and India, which have ambitious nuclear power programmes and are also scouting for uranium reserves.
The players who have supposedly been lethargic are the US utilities and perhaps the rest of the West. If we're going to have a game of musical chairs, I want the US utilities to be the ones left standing and trying to buy their way out of the mess. The reason is because they'll probably have the most access to the largest amount of money. Incremental uranium from new players like Strathmore would be extremely valuable.

There was a short article that mentioned the bear argument against uranium.
One of these factors is the high number of new projects in the pipeline that could come on line in the next few years. More projects likely means the market will be less sensitive when individual shortfalls occur.

UxC also estimates that speculators currently hold 16 to 18 million pounds of uranium. They may decide to get out if new projects look like they will meet demand.

It takes a very long time for new projects to get through the pipeline. Strathmore has been a few years ahead of the curve on this and they're still not bringing uranium online for a while.

As far as speculators are concerned, I wonder how much of their uranium has been loaned out to utilities who will need to buy back uranium to close the deficit? There were articles on hedge funds doing this, and doing it makes a lot of sense.

I noticed recently that Strathmore Chairman and CEO Dev Randhawa's predictions about the future of the uranium industry actually start to come true.

Khan Resources Inc. stock fell more than 20 per cent Tuesday after the Toronto-based mining company (TSX:KRI) warned that political changes in Mongolia could jeopardize its majority ownership stake in the Dornod uranium project.

"It is not certain whether or on what terms Mongolia would seek to acquire additional equity in the property, or the amount of such additional equity," Khan said.

Randhawa had said in the interview that these 3rd world mines have political instabilities and the big problem is losing your investment by a lack of good property rights. That is likely to make other companies less likely to rush into other 3rd world mining deals, especially since it involves allocating mining engineers and equipment which are in short supply, rather than money (which typically isn't).

This article captures the uranium story.

I'm quite happy with how the uranium industry is playing out right now.

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?