Jerry Grandey, CEO of Cameco (NYSE:CCJ), made some interesting comments concerning the long term uranium supply/demand balance at the Reuters Global Mining and Steel summit held in New York.
He said that the current lack of uranium supply expansion in the face of the current financial system difficulties coupled with the uncertainty of how Russia will react after the current Megatons to Megawatts deal expires in 2013 is setting up the uranium market for a future supply crunch. He was quoted as saying, “I think the financial crisis is clearly impacting the ability of every supplier to raise capital,” according to Reuters. “When you see project cancellations, you see expansion derail, you see some projects that will just go slower. That is just simply taking away future supply and sowing the seeds of the next spike in the uranium price.”
The current supply of uranium from mines is 115 million pounds per year against a demand of around 180 million pounds per year. Grandey said he expected demand to increase about 2-3% per year.
The deficit between supply and demand has been made up by decommissioning and downblend nuclear warhead material, primarily Russian warheads, under the Megatons to Megawatts program. This program is supposed to end in 2013 and the Russian atomic company Rosatom has been on the record that it does not intend to continue the program after 2013 as it has not been advantageous to Russia. This would be consistent for Russia as it has viewed full control and use of its resources as a cornerstone to a return to superpower status. The blueprint on how they would proceed can be seen by watching how they deal with their current oil and natural gas customers.
The current uranium price of $43.75 per pound is currently insufficient to stimulate sufficient new mine development in a timely enough manner to close the supply/demand gap. Although Cameco has had various problems lately that have impaired the stock price, especially around its Cigar Lake mine, the company still is the 800lb. gorilla in the uranium market. Smaller producers such as Paladin Resources (OTCPK:PALAF), which is in the process of doubling its uranium output and even Uranium One (OTC:SXRZF), which appears to be stabilizing itself after its debacle at its South African uranium mine appear to be worth a look for the long term.
Stock position: Long CCJ, SXRZF.PK, PALAF.PK.