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April 9, 2007
Uranium price hits record, with further rises expected
Paul Larter in Brisbane

shortage of uranium is pushing up the metal’s price to record levels and underpinning a surge in the value of Australian and Canadian companies that mine uranium oxide used to create fuel for nuclear power stations.

The price has surged to almost US$100 a pound for the first time in a generation, soaring 78 per cent during the past six months as production delays buoy the cost of the commodity. Analysts have been forced to revise upwards their forecasts, with some forward measures suggesting that prices will reach $125 a pound this year and $140 a pound in 2008.

The spot price has hit $95 a pound, its highest since the 1970s, rising 45 per cent from three months ago and almost 80 per cent from the level of six months ago. It was below $10 in 2002.

The surging price is fuelling a boom in the market valuations of junior Australian and Canadian uranium companies, which have risen 122 per cent and 75 per cent, respectively, during the past year, according to Resource Capital Research.


John Wilson, the managing director of the uranium analyst, said that forward indicators were continuing to strengthen.

“At some point it will pull back to a fundamental level. How much further it will go is not entirely clear,” he said. Significant upward pressure has been building since October, when flooding at Cigar Lake in Canada, the world’s biggest undeveloped high-grade uranium deposit, delayed production by two years until 2010 in an already tight market.

Energy Resources, of Australia, a subsidiary of Rio Tinto, provided a further squeeze last month when it declared force majeure on some contracts after heavy rains at Ranger, the world’s second-biggest uranium mine. The company cut production expectations for next year by up to 35 per cent.

Analysts at Macquarie, RBC Capital Markets and Goldman Sachs JBWere all predict that uranium prices will hit $100 a pound this year.

Max Layton, an analyst for Macquarie Bank, said: “Macquarie believes the bull market will continue for the next one or two years, at least.” He said that a shortage of mine supply would sustain pressure on the market over that period, citing the example of ERA’s problems at Ranger: “The problems at the Ranger mine alone will leave the market much tighter in 2008. Where’s that 1,400 tonnes of uranium going to come from?”

The World Nuclear Association says that restocking by utilities, speculation by hedge funds and buying for new reactors are also applying pressure. It expects 48 new nuclear power reactors to be operating by 2013, principally in China, India and Russia.

Miners in Australia, which holds 40 per cent of known uranium reserves, are poised for a further boost. The federal Labor Party is widely expected this month to drop a policy that effectively prevents the development of new mines.

Conversely, BHP, which owns the world’s biggest uranium resource, at Olympic Dam in South Australia, will not benefit from higher prices. Not only is it committed until 2010 to legacy contracts that pay less than $20 a pound, but also it has been forced to buy high-priced third-party uranium to meet the terms of some of its contracts.