Analysts Expect Big Moves for Uranium Price

Analysts Expect Big Moves for Uranium PriceThe uranium spot price could be in for some big moves this week following major accidents last week at Rio Tinto’s (ASX:RIO,NYSE:RIO,LSE:RIO) Rössing mine in Namibia and BHP Billiton’s (ASX:BHP,NYSE:BHP,LSE:BLT) Olympic Dam in Australia.

Rössing and Olympic Dam are two of the world’s biggest uranium mines, and accounted for 8 percent of global uranium supply in 2014; production stoppages there will thus impact supply. The uranium spot price is currently sitting unchanged from last week at $38.25 per pound of U3O8.

Fire at Rössing

On February 12, a massive fire broke out at the final product recover (FPR) plant at Rössing. While the exact cause of the fire has yet to be determined, the company did confirm on Saturday that no uranium was spilled, nor were any employees injured as a result of the accident. Meanwhile, Rio Tinto has said that operations at Rössing will carry on; however, due to the damage at the FPR it’s still unknown when the company will be able to ship its final product.

Rössing produces about 3 million pounds of U3O8 per year, which amounts to roughly 2 percent of global supply.

Electrical fault at Olympic Dam

Although uranium isn’t Olympic Dam’s primary resource, BHP’s mine contributes roughly 6 percent of global uranium supply. Last week an electrical fault reportedly damaged an important piece of mill equipment at Svedala, the largest of the site’s three mills. As a result the mill will be out of commission for six months. According to the company, production from Olympic Dam could be down by as much as one-third in 2015.

Market impact 

Raymond James analyst David Sadowski states in a recent note that of the two accidents, Olympic Dam is by far more significant not only because it’s a bigger mine, but also because the company sells the majority of its material on the spot market.

Rio, the analyst points out, has already cut back on output to deliver only on high-priced contracts. However, depending on how long Rössing is down, the company may now have to buy on the spot market to ensure it can make those deliveries.

On a different note, Cantor Fitzgerald analyst Rob Chang notes in a report that “[s]upply disruptions from two of the world’s largest uranium mines will likely cause uranium prices to move higher.”

Both analysts expect the uranium spot price to make a big move, jumping to $40 per pound of U3O8, if not higher.

That’s good news for uranium stocks, according to Sadowski, as they are likely to be impacted by a move in the uranium spot price.

Company news 

Athabasca exploration company NexGen Energy (TSXV:NXEannounced on February 17 that it has encountered significant dense accumulations of semi-massive to massive pitchblende mineralization with associated off-scale radioactivity from >10,000 to 60,000 cps.

Garrett Ainsworth, NexGen’s vice president, exploration and development, commented, “[t]his significant 81 m step-out to the southwest of AR-14-30 into continuous high grade mineralization with AR-15-38 represents a substantial step towards successfully executing our goal of building a significant resource at Arrow efficiently.”

The same day, Energy Fuels (TSX:EFR,NYSEMKT:UUUU) said that through its wholly owned subsidiary, EFR Arizona Strip, it has acquired a 50-percent interest in the Wate uranium deposit from Vane Minerals. The remaining 50 percent is still owned by Uranium One Americas.

Finally, cash-strapped Paladin Energy (TSX:PDN,ASX:PDN) announced last week that it has raised US$100 million via convertible bonds due March 31, 2020.

According to the company’s managing director, John Borshoff, “[t]he successful completion of this raising, along with the concurrent tender offer for the 2015 CBs, eliminates all of the near term refinancing risk and both reduces and extends the Company’s debt maturity profile. This significant de-risking of the balance sheet, along with the expected recovery in uranium prices, ensures Paladin remains well positioned to capitalise on its unique standing in the uranium market.”

 

Related reading: 

NexGen Energy Extends High-grade Zone at Arrow

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