Spot price benefits from producer woesNovember 01, 2007
Spot price benefits from producer woes
Publisher: U3O8.biz
The Germans call it Schadenfreude. Loosely translated, it means taking pleasure from the misfortune of others. And it's safe to say that's just what many uranium companies and investors were feeling Wednesday, when two of the metal's biggest producers went public with their troubles.
First, shares of Uranium One Inc. plummeted $2.24, or 17.6 per cent,
to $10.49 on heavy volumes of 74.6 million trades Wednesday. That's
because the Toronto-based uranium producer, gunning for top spot in a
market dominated by Cameco Corp., drastically lowered its production
forecasts.
Expected production dropped to 2.1 million pounds from 2.5 million
pounds for 2007 and 4.6 million pounds from 7.4 million pounds in
2008. For 2007, that's a drop of 16 per cent, blamed on delays in
commissioning equipment at Uranium One's Dominion Reefs plant in South Africa.
And come next year, the company expects a drop of nearly 38 per cent;
it says sulphuric acid shortages at its Kazakhstan projects are to
blame. Sulphuric acid is mixed with ground uranium ore to extract the
metal during production.
Uranium One CEO Neal Froneman told South African radio program
Moneyweb that dropping production levels are further exacerbated by
large capital cost increases at the company's Honeymoon site in
Australia. The company must now redesign the plant; production was
meant to start in early 2008; but has been delayed until the end of
that year.
An interesting aside: you may have seen Uranium One in the news a few
days ago, when it bought an entire town in Utah. The company bought
Ticaboo for US$2.7 million after buying a mothballed uranium mill in
the area. The Canadian Press reported the property to include RV
parks, housing infrastructure, a restaurant and convenience store.
In any case, rival uranium giant Cameco Corp. had no time to
celebrate, given news of further delays at the company's beleaguered
Cigar Lake mine.
The flooded mine was supposed come online this year, but repairs are
taking longer than expected. It is now projected to reopen in 2011 at
the earliest. Last year's closure of the mine was one of the factors
that helped uranium's spot price jump to $138 a pound last summer.
Cameco's stock fell $1.63, or 3.4 per cent, to $46.55 on Wednesday.
The company also posted impressive third-quarter sales, but said it
expects fourth-quarter sales to be lower, due to anticipated drops in
uranium sales volumes and spot price.
Here's the promised Schadenfreude: as always, delays to new production could shift the delicate supply-demand balance in favour of demand. Analysts suggest that, coupled with strong fundamentals, these latest delays are expected to keep the metal's prices firm.
Indeed, uranium stocks rose nearly across the board. Then again,
markets soared largely thanks to the U.S. Federal Reserve cutting
rates another quarter point in an effort to breathe new life into an
ailing American economy.
Still, the Resource World composite uranium stock index, an index
based on the performance of nearly 100 uranium companies, gained an
impressive 41.31 points Monday, or 3.26 per cent, to close at
1,308.38. The index continues to cruise at heights unseen, having
blown past the 1,200-point threshold it's been flirting with most of
October.
The index last visited the 1,200-point range in July, before spot
prices tumbled from $138 a pound U3O8 to $75 a pound. After a few
months in the dumps, the index has now recovered at a time when the
uranium sector is again showing some strength.
Earlier this week, the price of yellowcake for immediate delivery rose for the third week in a row, with industry indicator Tradetech posting a $4-gain to US$84 a pound of U3O8 after getting word of 100,000 pounds of U3O8 equivalent selling slightly above the metal's former spot price. Rival indicator Ux Consulting soon followed suit, posting a $5-increase on its website October 29.
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