dundee capital markets report 28/4/2014, page-46

didier et al.

It is useful to refer to some commentary concerning uranium production and pricing from early last decade and compare that with the present circumstances.

Here is an overview of uranium markets in October 2002:

http://www.tbc.school.nz/elearning/localsites/uic/nip36.htm

Production from mines in 2001 totalled 35,800 tonnes. Supply to the market in 2001 from mines totalled 42,200 tonnes U3O8; much less than utilities' annual requirements.

The fourth figure in this article is a chart (a cost-curve) showing (estimated) "world uranium production capability" versus production cost from 1988 to 2010.

Leaving aside the uncertainties in this estimation process, it can be seen that nearly all of the 35,800 tonnes of mine production in 2001 could be achieved at less than $US10 per pound. Hence, the bulk of producing mines in those times had a fair chance of being profitable at the prevailing spot prices; especially if they had term contracts negotiated at a premium to spot.

Step forward to 2010 and this cost curve:

http://www.google.com.au/imgres?imgurl=http%3A%2F%2Fstatic.cdn-seekingalpha.com%2Fuploads%2F2013%2F7%2F11467711_13751611868812_rId13.png&imgrefurl=http%3A%2F%2Fstockpiqs.blogspot.com%2F2013%2F07%2Fignite-your-portfolio-with-this.html&h=426&w=700&tbnid=2M0kKeVHA8kbaM%3A&zoom=1&docid=LKB_Dw5CmTHF3M&ei=C4NhU7zwG-bniAfv1YHABQ&tbm=isch&ved=0CFIQMygBMAE&iact=rc&uact=3&dur=2319&page=1&start=0&ndsp=13

shows that to produce 35,800 tonnes of U3O8 from mines is much more expensive, costing up to about $US27 per pound.

It is not knowable how low the spot price will fall, but there should be some confidence in assuming that the cost of uranium for utilities will not stay that low for ever; especially if they expect supply to come from new mine production. The "incentivisation" figures oft-quoted of around $US70-80 per pound are probably not far off the mark given expected demand for U3O8 into the future.

Cheers :-)