The uranium spot price has climbed more than $2.00 during the last few weeks. For those unfamiliar with the spot price of this particular commodity, let me assure you that this is not due to standard market fluctuations.
Threat of sanctions against Russia alters market perception: Utilities are starting to come into the market due to worry amongst fuel managers that the Russians can’t make fuel deliveries. This is a big deal because Russia is a major player in the uranium market. So the utilities are purchasing options on material and some are actually buying material itself. The big worry is sanctions. Not fuel sanctions (although Australia has threatened uranium sanctions) but rather banking sanctions. In fact, Deutchebank just shelved a uranium deal for that very reason. Essentially, the Russians have been excluded from the market because people don’t want the risk management.
US Department of Energy (DoE) sued for selling too much uranium: Converdyn – the JV between Honeywell and General Atomics – is suing the US DoE because of its (the DoE) decision to selling an increased amount of excess uranium into the market. Previously a so-called gentlemen’s agreement has been in existence ensuring that the DoE would sell no more than five million lbs per year into the market. Based on the actions of the presiding judge so far, it’s felt that Converdyn may win the case.
Cameco facing strike action at major mines: On August 12, Cameco workers at two Saskatchewan uranium facilities – Key Lake and McArthur River – voted for strike action (92% in favour). Negotiations will continue until August 28th but if there’s no agreement then labour action will ensure with a resultant drop in production from one of world’s largest uranium producers. In addition, on August 1st, Honeywell’s management ordered a lockout of union workers at the Metropolis Works conversion plant.
Decline in primary supply due to spot price: This year, Rio Tinto will produce less than 1/3 of the uranium it produced two years ago and numerous other uranium projects have been stalled or put on indefinite hold – all because of the low spot price.
It comes down to security of supply: I’ve been saying for some time that security of supply is one of the most important, yet most underrated, issues facing the uranium sector. Like it or not, a large percentage of production and secondary supply comes from countries that for one reason or another are subject to political instability. That means at any given time a percentage of world supply could go offline.
My belief is that utilities are starting to realize the inherent vulnerability in global uranium supply and are beginning to cover themselves to ensure long term supply. Over time, the spot price will come to reflect uranium’s supply fundamentals.
Anthony Milewski (Black Vulcan Resources), Fission Advisory Board
