'Irrational' uranium prices making life tough, even for world-class juniors
VANCOUVER (miningweekly.com) – The resource investment market’s fixation on uranium spot prices and fewer majors operating in the space are making life difficult for uranium exploration juniors, even those such as Fission Uranium, that have made world-class discoveries in one of the best jurisdictions in the world.
Speaking to Mining Weekly Online during the recent Prospectors and Developers Association of Canada yearly international convention, in Toronto, chairperson and CEO Dev Randhawa pointed to recent market commentary by Canadian uranium major Cameco CEO Tim Gitzel that current low uranium prices are not sustainable, or rational.
“The problem is that people are fixated on the spot price. There’s also the long-term price that’s at about $30/lb at the moment. Nobody can produce economically at these price levels. It’s a fictitious mirage of prices,” Randhawa stated.
He noted that all it takes for the spot price to move is 50 000 lb of yellow cake to move between two entities to create excitement in a 170-million-pound-a year-market. "How is that possible?” he lamented.
“It’s not sustainable or rational. The best mines in the world cost at least $20/lb to $25/lb to produce; at best $30/lb to $40/lb for average mines and then you still have capital expenditures to pay back and register a profit – so, really, we need a price of about $60/lb to be successful,” he said.
Randhawa recommends more production be taken off the market to stabilise long-term prices. “People who are not making money need to drop more production, as Cameco and the Kazakhs have indicated they will do. I’ve heard talks of Kazakhstan potentially dropping output by up to 20%,” he noted.
According to him, Kazakhstan is more important than Cameco, because it sells at spot price, keeping the price down. “The overhang is about eight-million to nine-million pounds, so, if that disappears, the price will go back to rational prices,” Randhawa said.
“I’ve been through the cycles before, such as in 1997 when the price dropped to $7/lb, and we needed $40/lb to survive. The problem is that the utilities don’t act rationally. When the price ranged between $7/lb to $20/lb, no one signed any contracts. For instance, Tokyo Electric Power Company Holdings (Tepco) waited until the price went to $100/lb before they signed a long-term deal,” he said.
Randhawa said the irrational price situation impacts on a junior company like Fission by driving the stock price down, making financing difficult and potentially very dilutive to shareholders.
He added that the depressed market had caused the major players to leave as their profits fell, leaving fewer players to pick up new development projects, despite being very attractive.
“There are fewer big players in the market at the moment. There are no more Rio Tintos in the uranium space; we need majors such as Areva back in. They are the companies to take guys like us out. We’re lucky because we have CGN as a partner – 'the mother ship' of all uranium companies. They have the cash, they have five nuclear reactors coming on line this year, eight more being built and [a further] eight in planning.
“We need higher prices to attract the bigger players, because nobody can make money with these low prices,” Randhawa stated.
The long-term uranium price fell to a low of $30/lb on December 1, and traded at about $33/lb on February 1. The spot price had fallen to $18/lb on November 1, climbing back to $24.50/lb on January 1.
Randhawa noted that Fission’s flagship Patterson Lake South (PLS) project represents one of the last remaining "low-hanging fruit" in the global uranium industry, possessing a high-grade deposit, only 50 m from surface.
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