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Uranium spot price expected to push through $40/lb this week

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Uranium spot price expected to push through $40/lb this week: Cantor Fitzgerald

11:36 am by Deborah Bacal

The uranium spot market will likely see some big moves this week, according to analysts at Cantor Fitzgerald, after two of the world's largest uranium mines encountered supply disruptions.

Analyst Rob Chang said the incidents at the two mines, which account for 8 percent of global production, will likely lift uranium prices.

"Combined with the fact that the spot market is very thin, as 20% or less of total annual sales are transacted at spot, a reduction of supply from one of the larger spot market sellers (BHP) will cause notable upward pressure on prices," wrote Chang in a research note released late Friday afternoon.

"We expect U3O8 spot prices to push through US$40/lb. this week (from US$38/lb.) into the mid-40s and perhaps higher."

The incidents occurred at BHP's (NYSE:BHP) Olympic Dam mega copper-gold-uranium mine in Australia, and Rio Tinto's (NYSE:RIO) Rossing mine in Namibia.

BHP announced that the largest of its three mills at its property was damaged due to an electrical fault, with expectations that the mill will be down for six months. It is estimated that production could be hurt by as much as 30 percent from a previously anticipated 8.7 million pounds, Cantor said.

Uranium is considered a by-product of the Olympic Dam mine, which is more focused on the copper and gold output. As a result, the uranium produced from the property is generally sold in the thin spot market, Chang wrote, providing for less supply in this market and a "large corresponding price increase."

Meanwhile, at the Rio Tinto mine, a fire broke out in its final product recovery plan, the location where uranium oxide is packed for export. Most of the damage was contained to the roasters inside the facility, with operations to continue, the company said.

But because of the damage to the plant, it is unknown when Rio can ship the final product out of the mine and into the market, Cantor Fitzgerald said. The cause of the fire remains unknown.

"Unlike at Olympic Dam, Rossing’s production has already been scaled down to meet Rio Tinto’s long-term contract requirements, which are at a higher price point than the current US$38/lb. spot price," Chang said.

The broker is of the view that a "violent upward move in the price of uranium is inevitable", based on an unavoidable supply deficit expected in 2020, where uranium supply from all sources does not meet increased demand anticipated, particularly from China.

"With primary supply at the mine level already notably below current demand levels (148M lbs. vs. 175M lbs.), few new mines coming online within the next five years, long term all-in sustaining costs at US$80/lbs., and unexpected supply shocks as those listed today, we believe uranium will need to undergo dramatic price increases to incentivize supply to meet demand – otherwise the world will have inactive nuclear reactors and an electricity shortage," Cantor concluded.

The brokerage has several uranium miners in its coverage universe, including Cameco (TSE:CCO) (NYSE:CCJ), Denison Mines(TSE:DML) (NYSE:DNN), Fission Uranium (TSE:FCU) (OTC:FCUUF), Energy Fuels (TSE:EFR) (NYSE:UUUU), NexGen Energy(CVE:NXE), and others.