Uranium Prices In Skid; What Happens Next?

Uranium mining faces an uncertain future due to price fluctuations with questions all the more pertinent given the current price of uranium is near a 13-year low, says the so-called Red Book, a widely respected report published by the Organization for Economic Cooperation and Development's Nuclear Energy Agency in conjunction with the International Atomic Energy Agency.

YellowcakeThe official name for the 26th and most current Red Book is the Uranium 2016: Resources, Production and Demand, which includes data available through January 1, 2015, according to a report in Power magazine.

A chart that traces the price fluctuations from 1986 through November 2016, however, clearly shows the modern volatility of uranium pricing. Prices from 1986 to early 2003 – a span of 17 years – never rose above $20/pound nor fell below $10 per pound.

Throughout 2002 and early 2003, specifically, the price rested on $10/pound. Then, suddenly it took off.

By mid-2007, the price peaked at just under $140/pound. Then, as suddenly as it rose, it dropped, reaching $40/pound in early 2010, only to take off again, surging to above $70/pound within a year. But prices have plummet since, dropping to $18/pound in November 2016.

Such ups and downs would give any sensible mining company executive pause, but mining is not an endeavor that can steer right over the hood of the car. It takes about 10 years to develop a uranium claim, which means investments made today must be based on the unknown – prices 10 years down the line.

That leaves mining companies with tough choices, but one of the factors that goes into mining decisions is how much money is being made today. If times are good, the willingness to take chances on the future is also improved.

But times are not good. According to the Red Book, it costs a mining company an average of $30/pound to extract and convert uranium to a concentration that can be shipped to an enrichment plant.

Case in point: Cameco Corporation of Saskatoon, Saskatchewan, is aware that demand will pick up given the rate of construction of new reactors. “There is still going to be a need for more uranium – perhaps even more so now that many (mining) projects have been delayed or canceled due to low uranium prices,” said Cameco President and Chief Executive Officer Tim Gitzel.

Prices will go up. “It's a question of when, not if,” said Gitzel.

To put yourself in Gitzel's position and consider the following. The price of uranium is at a 13 year low, so maybe it's time to cut back on production. But competitors are cutting back on production, so maybe it's time to increase production to take advantage of that. In addition, a record number of reactors are currently under construction, so it's a good time to ramp up. But Japan, France, Germany, Sweden and others, spooked by the Fukushima Daiichi disaster are backing away from nuclear power partially (in the case of France), completely (in the case of Germany) or tentatively (in the case of Japan). So maybe it's time to cut back on uranium production after all.

Here's what Cameco is actually doing. They are cutting production at Rabbit Lake and in Wyoming and Nebraska, but going full steam at Cigar Lake, where the company projects output of 18 million pounds of product this year.

At the same time, the budget for capital projects and exploration have been slashed – by 50 percent.

Check out Aaron Larson's complete article in Power magazine for more details and greater insight into this issue.

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