major uranium supply shock

Cantor Fitzgerald Canada Reports...

Unexpected supply shock halts 4% of global uranium production; Imouraren Officially Delayed

Event: Energy Resources of Australia (ERA-ASX, Not Rated), a member company of the Rio Tinto Group (RIO-NYSE, Not Rated), has announced that a failure of Leach Tank 1 at its Ranger Mine located in the Northern Territory of Australia has caused all plant operations to be halted for clean up and assessment activities. In other news, the 13M lbs U3O8 per year Imouraren mine has been delayed to at least the end of 2015.

Bottom line: The unexpected halt of 4% of global uranium production highlights the tenuous nature of its supply, which is concentrated among a limited number of producers. In addition, the announcement of a delay at the giant Imouraren mine is yet another reduction in future supply. While we are already forecasting supply deficits in two of the next five years and an unavoidable, sustained deficit beginning in 2019, these two events may be the catalysts needed to move the U3O8 spot price back above the current marginal cost of production ($40/lb) and eventually to the minimum long-term equilibrium price of $70/lb.

Energy Resources of Australia has announced that at about 1am local time on Saturday December 7, Leach Tank 1 located in the processing area of the Ranger mine failed and a mixture of slurry containing mud, water, ore, and acid escaped.

A crane that had been used to assist in blocking the original hole after it was discovered was damaged when the 1,450 cubic meter tank gave way. Personnel were evacuated earlier when the hole was initially discovered.

The company noted that containment systems at the mine have fully captured the slurry that was released and Kakandu National Park, which surrounds the mine, will not be affected. All water monitoring points have reported normal readings.

It is unclear as to length of time the operations will be halted at Ranger, which is expected to produce about 4% of the world’s U3O8 production in 2013. Considering that there may be a third-party investigation, clean up, and facility rehabilitation activity involved, the delay may have a notable impact to global supply.

In other news, Niger’s President has announced that the 13M lbs U3O8 per year Imouraren mega mine operated and owned by Areva will be delayed at least six months to 2015. Security concerns as well as the high cost of the mine are the drivers of this decision. It is expected to cost €1.2B to start the mine with an operating cost north of $80/lb.

Cantor Fitzgerald Canada Research had long removed the impact of Imouraren to our estimates due to the high cost and risky nature of the project. While not directly impactful to our estimates, the official delay may be yet another exclamation point behind the story of a looming supply deficit.