ERA Mine Flooding Further Tightens Uranium Supply

 |  Includes: CCJ, EGRAF
by: James Finch

After Cameco Corp’s (NYSE:CCJ) Cigar Lake flood at the company’s northern Saskatchewan uranium mining project rattled analysts and utilities who previously expected sufficient uranium would be available to meet the needs of nuclear utilities, along came another mine flooding in Australia. The March 7th announcement by Energy Resources of Australia (OTCPK:EGRAF) was different. While Cigar Lake effectively removed uranium mining supply in 2008, ERA’s ‘force majeure’ announcement (.pdf) withdrew supply anticipated for this year.

Even before the force majeure, TradeTech’s Nuclear Market Review was inclined to increase the consulting service’s weekly spot uranium price indicator. Flooding at ERA’s Ranger mining operations confirmed the already very tight uranium supply would get much tighter. And it will cost delinquent utilities who did not stockpile sufficient uranium to meet their reactor requirements to pay more for new uranium supply they may have need of.

Presently at US$90/pound, it appears a sure thing that spot uranium would rise past the century mark and perhaps gallop higher. TradeTech announced that ERA’s force majeure ‘stunned’ nuclear utilities. Active demand for uranium is currently running more than two to one. More utilities want to buy uranium than what is presently offered. Utilities, which were locked-in ERA contracts, were paying the Australian subsidiary of Rio Tinto about $22/pound. Now, utilities will be forced to pay about five times the price for the same uranium.

ERA supplies utilities in North America, Europe and Asia. The company provides about 11 percent of the world’s uranium mining supply. It is the world’s third largest producer. The impact of this flooding has not yet been evaluated. Preliminary estimates for the first quarter 2007 could mean a loss of nearly one million pounds. Because of the company’s force majeure announcement and the company’s official statement that “production will be impacted in the second half of 2007,” TradeTech’s Gene Clark estimated the loss of newly mined uranium could run much higher.

As we discovered after the Cigar Lake mine flood, imminent uranium producers, and others whose projects were moving forward to production, greatly benefited by the disaster in terms of share price appreciation. The recent ERA flood and the suspense about Cameco Corp’s (CCJ) announcement of remediation efforts, due this month, should keep uranium stocks buoyant for at least the next few weeks.