Uranium prices better but maybe no Cigar (Lake)
Anything faintly cheerful about uranium is welcome these days. Now we have a report that goes one better than "faintly" but still expresses some reservations about the economics of upcoming new projects.
From Sydney, the analysts at J.P. Morgan Securities Australia have just upped their price forecasts. This be a welcome relief to the industry as it watches the spot price struggle to make ground. This week the spot uranium price edged up a measly 50c to $US52.50/lb.
The new figures mean a 5 per cent lift on Morgan’s 2012 forecast which now stands at an average $US63/lb. Their 2013 forecast has been lifted by 17 per cent over their previous projection to $US70/lb, the 2014 forecast has gone up by 21 per cent to $US85/lb while for 2015 the analysts have gotten really bullish and increased their outlook on the price by 25 per cent to $US70/lb. Yes, I know that’s lower than for 2014, but a good deal better than J.P. Morgan was previously expecting.
The analysts think that there’s a $US50/lb floor price now underpinning the market.
The bad news is that Morgan also sees the incentive price at $US80/lb - that's 54 per cent above the present spot price level (although contracts are often set above this). The incentive level is the price needed for a selection of 20 greenfield projects sampled to achieve a 15 per cent nominal rate of return. These projects are expected to come into production over the next 10 years and represent a total capacity of 66,000 tonnes (compared to current global mine production of about 62,000 tonnes a year).
So the rising price through to 2014 is due mainly, in the analysts’ view, to the expected pushing back of new mines as they wait until prices can justify development.
They see only five projects as having positive internal rates of return in the present climate - Four Mile in South Australia, Jabiluka in the Northern Territory of Australia, Zhalpak in Kazakhstan (being developed with China National Nuclear Corp.), Cigar Lake in Saskatchewan, and Yeelirrie owned by BHP Billiton and located in Western Australia. (In their rankings of cost, the next lowest is Kintyre in Western Australia owned by Cameco and Mitsubishi.)
By the way, the rankings for 2010 show that mines in Kazakhstan supplied 33 per cent of the world's uranium, followed by Canada's mines with 18 per cent. Then comes Australia at 11 per cent and Namibia 8 per cent.
