June 3 (Bloomberg) -- Uranium prices are probably too low to...

June 3 (Bloomberg) -- Uranium prices are probably too low to spur the development of new mines, leaving a potential shortfall in supply in the years ahead, Rio Tinto Group and Cameco Corp. officials said.

Uranium prices peaked at $136 a pound in 2007 and have fallen as low as $40 this year, according to Roswell, Georgia- based Ux Consulting Co. Demand for uranium is expected to outstrip supply from next year through 2012, pushing prices up to $75 in 2011, Macquarie Group Ltd. estimates.

“The market is relatively balanced and utilities are well covered, but if you go out several years there has got to be some concern about where supply is going to come from,” George Assie, Cameco’s senior vice-president of marketing and business development, said in an interview in Edinburgh on June 1. The Saskatoon, Saskatchewan-based company is the world’s largest uranium producer.

Uranium prices plunged partly on concern that countries including China and India would delay nuclear-power projects because of the global economic crisis.

Uranium supply will expand by 5.8 percent this year and growth will slow to 1.2 percent in 2010 and 4.1 percent in 2011, Max Layton, an analyst at Macquarie, said in an e-mail. Uranium for immediate delivery is trading at about $49.50 a pound, according to Ux Consulting.

‘Incremental Production’


“It is possible we’re not at a level yet that will support the necessary amount of incremental production that we are going to need over the next five to 10 years,” Clark Beyer, managing director of Rio Tinto Uranium Ltd., said in an interview in Edinburgh. London-based Rio mines the metal in Australia’s Northern Territory and Namibia.

Beyer and Assie declined to give specific forecasts for what prices would be needed to encourage new supply, saying that it depended on the project.

Since 2003, the price of uranium has risen fourfold while output of the radioactive metal has advanced by about 24 percent, Kim Goheen, Cameco’s chief financial officer, said today at an investor conference in New York.

Forecasts of additional gains in output have been tempered by lengthy regulatory processes and other challenges, including the October 2006 flooding of Cameco’s Cigar Lake mine, the world’s largest undeveloped high-grade uranium deposit.

“The current financial turmoil is likely to put additional pressure on the development of new production capacity,” Goheen said.

Uranium Recycling Program

Supply gains will also be curbed after 2013 when a program to convert Russian nuclear warheads into fuel ends. The 20-year plan to recycle bomb-grade metal into low enriched uranium suitable for reactors converted the equivalent of 14,000 warheads into 10,200 metric tons of fuel through the end of 2008, according to USEC Inc.

The end of the program will sap so-called secondary supplies of uranium, said Gerard Pauluis of Synatom SA, the Brussels-based company that buys as much as 1,200 tons of uranium a year for Belgium’s reactors.

Cameco fell C$1.53, or 4.9 percent, to C$29.50 at 4:16 p.m. in Toronto Stock Exchange trading. The shares have risen 40 percent this year.

Rio fell 141 pence, or 4.6 percent, to 2,912 pence today in London trading.

To contact the reporters on this story: Anna Stablum in London at [email protected]; Christopher Donville in Vancouver at [email protected].

Last Updated: June 3, 2009 17:03 EDT