U3O8 Price could rise sharplyThe uranium spot price could be in for some big moves this week following major accidents last week at Rio Tinto’s (ASX:RIO,NYSE:RIO,LSE:RIO) Rössing mine in Namibia and BHP Billiton’s (ASX:BHP,NYSE:BHP,LSE:BLT) Olympic Dam in Australia.
Rössing and Olympic Dam are two of the world’s biggest uranium mines, and accounted for 8 percent of global uranium supply in 2014; production stoppages there will thus impact supply. The uranium spot price is currently sitting unchanged from last week at $38.25 per pound of U3O8.
Fire at Rössing
On February 12, a massive fire broke out at the final product recover (FPR) plant at Rössing. While the exact cause of the fire has yet to be determined, the company did confirm on Saturday that no uranium was spilled, nor were any employees injured as a result of the accident. Meanwhile, Rio Tinto has said that operations at Rössing will carry on; however, due to the damage at the FPR it’s still unknown when the company will be able to ship its final product.
Rössing produces about 3 million pounds of U3O8 per year, which amounts to roughly 2 percent of global supply.
Electrical fault at Olympic Dam
Although uranium isn’t Olympic Dam’s primary resource, BHP’s mine contributes roughly 6 percent of global uranium supply. Last week an electrical fault reportedly damaged an important piece of mill equipment at Svedala, the largest of the site’s three mills. As a result the mill will be out of commission for six months. According to the company, production from Olympic Dam could be down by as much as one-third in 2015.
Market impact
Raymond James analyst David Sadowski states in a recent note that of the two accidents, Olympic Dam is by far more significant not only because it’s a bigger mine, but also because the company sells the majority of its material on the spot market.
Rio, the analyst points out, has already cut back on output to deliver only on high-priced contracts. However, depending on how long Rössing is down, the company may now have to buy on the spot market to ensure it can make those deliveries.
On a different note, Cantor Fitzgerald analyst Rob Chang notes in a report that “