ANALYSIS-Small U.S. uranium miners make contrarian bet by ramping up output – by Rod Nickel (Reuters U.S. – March 5, 2014)

TORONTO – (Reuters) – Sinking prices for uranium in the past three years have caused many of the world’s biggest uranium miners to scale back production plans or defer projects, but two small U.S. producers are bucking the trend by planning to increase output this year and investors have sent their share prices surging as a result.

Uranium prices are hovering near eight-year lows because an earthquake and tsunami struck Japan in March 2011, crippling the Fukushima-Daiichi atomic power plant, and leading to the shutdown of nearly all reactors in the country, which previously relied on nuclear sources for 30 percent of its power. The disaster crimped Japanese demand for uranium and fueled fears about a backlash to nuclear power.

Last month, Japan included nuclear power in its draft energy plan, easing doubts about the industry and boosting uranium company shares. The spot uranium price, however, remains weak and companies scaled back production and halted expansion plans that curbed potential output by 20 million to 25 million lbs (9 million to 11.3 million kg), according to Edison Investment Research. That amounts to 16 percent of estimated global production last year.

U.S.-based UR-Energy and Uranerz Energy Corp are going in the other direction. They are poised to ramp up production this year, helped by low costs and long-term contracts at prices well above current spot prices.

Utilities locked in prices with the companies to secure near-term supplies, but they did so when prices were higher than now.

The two miners may be making a contrarian move at just the right time. While Japanese demand remains a question mark, it is rising elsewhere as 70 reactors are under construction globally, part of a net increase of 93 expected over the next 10 years, and the most since the late 1970s, according to Canadian uranium producer Cameco Corp . Last year, there were 433 operating nuclear reactors worldwide.

“There’s a lot of nuclear development,” said Francis McGuire, chief executive officer of Major Drilling Group International Inc, which offers drilling services to the mining industry. “We don’t see it in North America so we close our eyes to it, but both in China and Eastern Europe, nuclear still is a viable option, and you’ve got to supply those generating stations.”

Uranium is a radioactive metal used to fuel the fission chain reaction in nuclear reactors, which generates heat that is turned into electricity.

Uranerz’ five-year agreements with U.S. utilities such as Exelon Corp price uranium around $50 or more per lb, against the current $35.50 spot price, said Paul Goranson, president and chief operating officer at Uranerz, who was talking on the sidelines of the Prospectors and Developers Association of Canada (PDAC) convention in Toronto.

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