uranium markets evolve: geordie mark

http://www.theenergyreport.com/pub/na/12809

"TER: The completion of the "Megatons to Megawatts" agreement, which recycles Russian nuclear warheads into low enriched uranium for U.S. power plants, could leave a gap in the supply of uranium needed for power generation. Should investors bake that assumption into their models before the final pound of uranium is exhausted?

GM: It could take up to 24 million pounds (Mlb) of U3O8 off the market annually, which is certainly something that not all investors have baked that into their assumptions. However, there's a wait-and-see component to how the cessation of that agreement comes into play and what the resultant effects are.

TER: What uranium price are you building into your models through 2012?

GM: For the time being, we have $70 per pound (/lb) this year and $80/lb for next year.

TER: At what point in 2013 do you expect uranium to hit $80/lb?

GM: Uranium is about $52/lb and we forecast that prices will start moving up closer to the end of the year. There have been significant reductions in production in the last year, particularly from the Ranger and Rossing mines, which probably culminated in about a 9.5 Mlb U3O8 shortfall in production versus capacity. We expect production shortfalls from the two mines to be emulated this year as the wet season hangs on, and as mine planning leads to processing lower grade material. However, those material shortfalls in production in 2011 offset some of the shortfall coming from lower demand out of Japan. We still expect that these trends will continue on the production side in 2012, and as such they will partly offset lower demand from Japan. As a consequent effect of lower uranium prices, and also some technical re-evaluation, we have witnessed the mothballing of some large-scale projects in the Central African Republic and in Namibia (Trekkopje project) operated by AREVA SA (CEI:PAR), which may add to the underlying support for the uranium price in the mid- to long-term.

TER: What kinds of companies can thrive in that environment?

GM: Uranium producers that have turned the corner in terms of understanding the operational issues for their mines and near-term producers looking to add value through expansion of their resource base. "