A serious signal for energy companies
The recent temporary closure of the largest uranium mine, McArthur River of the Canadian Cameco, has resulted in the increase of global uranium demand and led to the growth of spot quotations for natural uranium by 13.5%, to US$23 per pound.
After the accident at the Fukushima-1 nuclear power plant in 2011, global uranium market entered into a phase of chronic surplus. Prices are kept at extremely low levels, slightly rising only on declarations about a reduction in production or closure of fields, however there is a possibility prices will start to recover already at the beginning of 2018.
According to recent statements from the head of Cameco, Tim Gitzel, operations at the company’s largest Canadian mine McArthur River and the Key Lake concentrating plant will be suspended for 10 months, that will be mainly due to a long surplus in the uranium market.
Gitzel also added that the company does not expect a change in the situation in the medium term. Production at the suspended assets during the period of January-September of the current year amounted to 11.1 million pounds of uranium (5,000 tonnes).
Analysts at the Russian Kommersant business paper say, currently relatively small volumes of uranium are traded on the spot market. The main deliveries are carried out through medium- and long-term contracts with consumers.
Global uranium market peaked by 2011 amid growing interest in nuclear energy. At that period of time spot market prices exceeded US$73 per pound, but after the accident at the Japanese nuclear power plant followed by the rejection by a number of countries and the suspension of nuclear power plants in Japan, global uranium demand drastically dropped. In recent years, spot prices for uranium have been consistently low – about US$20 per pound, and even US$19 at some periods of time.
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The fall in prices resulted in the closure of a number of junior projects in uranium mining, which were started in the previous decade at the peak of demand. About their plans to suspend large-scale projects were also announced by some uranium majors. For example, in Russia, where the prime cost of mining on the main uranium assets is considered quite high, Rosatom has frozen the development of one of the world’s largest uranium deposits, Elkon in Yakutia.
One of the solutions to the problem of uranium surplus would be the reduction of global supplies. However, so far, neither the departure of juniors nor the attempts of key market players to balance the market have resulted in the growth in prices.
An attempt to reduce the surplus earlier this year was made by Kazakhstan. The cost of production in the country is one of the lowest in the world, and Astana has become a global leader in the production of uranium (24,000 tonnes in 2016). The Kazakh uranium monopoly Kazatomprom at the beginning of the current year announced reduction of production plans for 2017 by 10%. This significantly supported the price of uranium, which rose then to $26.5 per pound, but the effect did not last long.
A spokesman of Uranium One group (U1), a Russian uranium miner, which operates production in Kazakhstan, through a number of joint ventures with Kazatomprom said the company noticed that “some correction of spot, and long-term uranium prices was expected for a long time,” adding that with spot quotes of US$20 per pound, many industry enterprises are unprofitable.
However, U1 believes the growth of spot prices is likely to be short-term, as Cameco talks about a temporary shutdown of production.
Other global uranium producers also believe the decision of Cameco to suspend production warmed up the market and sent a serious signal for energy companies, which prefer purchases on spot market instead of signing long-term contracts.
This may entail a new interest in long-term contracting, which will further heat up the market.
In the case of U1, the company also believes that the McArthur River suspension will “significantly reduce” uranium surplus in 2018, which, however, will continue to be observed in the medium and long-term.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>