Monday 5th December 2016

Resource Clips


Faith in uranium’s hotspot

Low prices take another Australian casualty but Athabasca Basin optimism persists

by Greg Klein

The agonizing wait for uranium’s price breakout has taken its toll on two more Down Under-headquartered miners. ASX-listed Energy Resources of Australia plummeted 48% after abandoning a planned expansion of Northern Territory’s Ranger 3 mine. That leaves Rio Tinto NYE:RIO, which holds 68.4% of ERA, considering a post-tax impairment of about US$300 million.

Low prices take another Australian casualty but Athabasca Basin optimism persists

With uranium grades 100 times the world’s average,
Cigar Lake thrives while competitors shut down.

Explaining the decision to dump Deeps’ feasibility study, ERA’s June 11 announcement noted uranium’s lack of price improvement as well as its uncertainty for the immediate future. Additionally, economics would require operations beyond Ranger’s current permitting span, which ends in 2021.

“After careful consideration,” Rio concurred. The giant “does not support any further study or the future development of Ranger 3 Deeps due to the project’s economic challenges.”

Rio had already cut production at its majority-held Rossing mine in Namibia. A South Australia mine, Honeymoon, was taken offline by Uranium One.

The commodity has eluded positive predictions from many quarters, including ASX- and TSX-listed Paladin Energy PDN, which placed its Kayelekera mine in Malawi on care and maintenance and sold a 25% stake in its Langer Heinrich mine in Namibia to China National Nuclear Corp. Those setbacks haven’t stopped Paladin managing director/CEO John Borshoff from predicting sharp price hikes in near- and medium-term contracts.

The long-anticipated market-moving event would be Japan’s first reactor restarts, which would reduce the country’s apparent stockpile and, maybe more significantly, provide a psychological boost to a demoralized industry. Once scheduled for operation this month, the first two restarts currently face a court injunction.

But demoralization isn’t universal. Although Borshoff’s predictions are generally echoed by Tim Gitzel, the Cameco Corp TSX:CCO president/CEO speaks without Borshoff’s tone of desperation. In contrast, Cameco has been expanding production through its majority-held Cigar Lake, which achieved commercial production on May 1. The engineering marvel expects to add six to eight million pounds U3O8 to world supply this year, before hitting 18 million pounds annually by 2018.

The world will need at least four more Cigar Lakes—this in an industry not known for being quick to bring on new production. A mine can take up to 10 years when things go well.—Rachelle Girard,
IR director for Cameco Corp

Speaking at the Cantor Fitzgerald Annual Global Uranium Conference earlier this month, Cameco IR director Rachelle Girard predicted demand would rise 4% annually to about 230 million pounds U3O8 a year within the next decade, compared with today’s output of about 165 million pounds. Girard counted 63 new reactors now being built, an estimated $740-billion investment. She expects a total of 80 reactors over the next 10 years.

Girard predicts even more to come, noting that two billion people currently have very little or no access to electricity. Another two billion are expected to join them by 2050.

Her employer, she confidently maintained, could supply about 30% of global demand by 2024, up from about 16% now. “We have the pounds in the ground to support a lot of growth when the market calls for it.” But Girard insisted, “The world will need at least four more Cigar Lakes—this in an industry not known for being quick to bring on new production. A mine can take up to 10 years when things go well.”

Cigar Lake was discovered in 1981, began construction in 2005 and started production last year.

Industry executives and analysts say uranium needs to rise to a level of $65 to $80 a pound to justify new development. The most recent (June 8) price indicator publicly released by Ux Consulting floundered at a dismal $35.75.

Girard emphasized Cameco’s “especially pleased that several of our Tier 1 assets are located in the prolific Athabasca Basin.” Home to the world’s highest uranium grades, another exploration season has juniors busy, often on the Basin’s margin where they hope to find not so much the next Cigar Lake but another Patterson Lake South.

Meanwhile David Talbot sees a silver lining in ERA’s woes. Bloomberg quoted the Dundee Capital Markets senior uranium analyst stating that the decision to scuttle Deeps’ feasibility “will have a major impact to world production supply.” Talbot explained that while the expansion would have made Ranger the world’s third-largest uranium mine, its cancellation portends a “very positive” sign for uranium prices.


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