Sunday, April 4, 2010

Uranium could rise to $60/lb, but not for a while

Experts cast doubt on speculation of $100/lb

Money futuresAll it takes is one uranium mining CEO to get some ink from a speech at a major conference, and people pile on to comment, but in this case it may be with good reason. The CEO is Amir Adnani from Texas-based Uranium Energy Corp. (AMEX:UEC) which has several production sites using ISR methods.

Speaking at a meeting of miners and investors in Hong Kong on March 31, Adnani startled industry experts by claiming prices could jump to $100/lb due to rising demand for nuclear fuel by China, India, and South Korea. He predicted prices in the range of $75/lb within five years.

“We are going to see some hyper activity,” he said, because utilities will discover increasing demand for electricity amidst rapid growth globally for new nuclear power plants. The IAEA notes there are 436 reactors operating worldwide with 56 under construction and four times that number in the planning stage.

According to a report by Bloomberg wire service, which covered the conference, Adnani said that mines that could go into production will remain shut until the price exceeds $55/lb. The reason, he said, is rising costs. Adnani must not have spoken recently with Cameco (NYSE:CCJ) which told this blog in February they are producing uranium at a cost per pound in the mid $30s at the Crow Butte ISR mine in Nebraska.

What drives the interest in Adnani’s remarks that in 2007 uranium prices spiked at a record high of $136 pound. However, the rapid rise was followed by an equally rapid fall. The price has been hovering in the range of $42/lb for months according to Ux Consulting’s report for March 30th.

Hyper price activity unlikely

cold-water-tapThe Wall Street Journal also poured cold water on speculation about a rapid rise in the spot price of uranium. The newspaper reported April 5th that slower than anticipated development of nuclear reactors in the U.S. and market surpluses from Kazakhstan will work to keep the price down.

While the Megaton-to-Megawatts program will wind down in 2013, Russia is already selling large quantities of uranium to U.S. utilities at market rates. It follows that that country will continue to blend down HEU into commercial nuclear fuel.

There is rising demand for uranium. Evidence in the U.S. includes the fact that White Canyon mining (CVE:WU) an Australian firm, brought the Daneros Mine in Utah into production in February. Also, Energy Fuels Corp (TSE:EFR) is building a new 500 ton per day uranium mill in Montrose, Colorado, to take ore from nearby mines.

The Wall Street Journal gets the last word here . . .

“The lesson of uranium's last boom and bust is that, as with any industrial metal, prices are cyclical and feed back into shaping the fundamental factors of supply and demand. These are well balanced for now. Beware any predictions of an imminent explosion in prices.”

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