Ann: Research Report - ISR Uranium and Peninsula , page-42

re: Ann: Research Report - ISR Uranium and Pe... Zubana - I agree, there will be a pivot point where utilities will get nervous about the need to lock in currently 'uncovered demand'

That point is not yet here. This year's demand is fully covered by existing contracts and, as you point out, next year's is nearly 90% covered. At the moment, there are options to cover the remainder of 2015 requirements from spot(now down to $28) due to current plentiful supplies (through a combination of excess production and the increased capacity to enrich uranium, the latter equivalent to 8m lbs supply per annum).

But somewhere that pivot point will arrive. Some are suggesting later this year, some next year. Will depend on buyer calculations as to where the squeeze point lies (in terms of the mining industry reduction in forward production, on the one hand, and the lead time required by buyers to secure 2016 and beyond supplies).

The following article (like the interview clip I posted yesterday)emphasises the need for more supply cuts for prices to stabilise and ultimately rise.

Bottom line for PEN is that it will continue to be extremely difficult for some months to secure favourable term contracts. Perhaps Gus can pull a rabbit from the hat. But if not, will have to wait for the turnaround.


"Uranium supply cuts needed as spot price continues to tumble
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Peter Koven | May 21, 2014 | Last Updated: May 21 11:49 AM ET
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Uranium concentrate, also known as yellowcake
Daniel Acker/Bloomberg NewsUranium concentrate, also known as yellowcake

Last week was another bad one in the uranium market, as the spot price dropped yet another dollar to US$28 a pound, the lowest level since 2005. By comparison, the price was US$66.50 prior to the Fukushima disaster in 2011, and topped out at more than US$135 in 2007.

Uranium miners maintain they are optimistic about prices in the coming years, as demand is expected to increase and outstrip supply. But that doesn’t help anyone in the short term, while Fukushima still looms large over the market. Scotiabank analyst Ben Isaacson said demand upside is “unlikely to stabilize” the uranium market this year, even with some Japanese reactor restarts, an acceleration of reactor starts in China and inventory building.

Instead, he said there has to be a response on the supply side, both from existing and planned mines.

“The challenge will be to figure out when/where the next supply cuts will come from,” he said in a note.

Mr. Isaacson noted that a lot of global production is inelastic to price moves, either because it is low cost, locked into contracts or politically important. He did not speculate on where the cuts will come from.

Another complication is that uranium enrichment capacity continues to expand globally. He said a glut of enriched supply could cause marginal demand for uranium to slow down.

Regardless of the poor market conditions, Mr. Isaacson maintained his uranium equity ratings and price targets. Cameco Corp. and Denison Mines Corp. are rated sector outperform, while Paladin Energy Ltd. and Uranium Participation Corp. (which invests in physical uranium) are rated sector perform.

http://business.financialpost.com/2014/05/21/uranium-supply-cuts-needed-as-spot-price-continues-to-tumble/