Cameco sees uranium supply crunch continuing
NEW YORK (Reuters) - Uranium demand will likely outstrip supply for the next five to 10 years, but the supply crunch does not necessarily signal higher long-term uranium prices, the chief executive of Cameco Corp. (CCO.TO) said on Wednesday.
Speaking at the Reuters Global Mining and Steel Summit, Jerry Grandey said that energy producers who are once again turning to nuclear energy will have to burn through existing uranium inventories before the sufficient new production comes on-line.
"In the near term we've got a little bit of a supply crunch that's going on mostly because for two decades there was almost no investment being made in exploration," he said, pointing to global uranium consumption of about 180 million pounds a year, versus production in 2006 of about 103 million pounds.
"In the long term there's no question that these high prices are going to stimulate more production and as soon as there's a little bit of excess in the marketplace then I think you'll begin to see prices relax."
Uranium spot prices rose to $125 a pound this week, up from $7 in 2000 as a resurgence of non-greenhouse gas-producing nuclear power has driven demand.
Grandey said, however, that spot prices didn't accurately reflect the longer-term contracts between uranium suppliers and customers.
"We see for the first-time in history a decoupling of the long-term price from the spot price," said Grandey, whose company is the world's top uranium producer.
"You look at the long-term price, it's about $85, and there doesn't seem to be much upward pressure on the long-term price, at least in the last few months."
That suggests that utilities are reluctant to pay higher prices, while suppliers are willing to be more competitive, he said.
Some of the spike in uranium spot prices has been attributed to Cameco's troubles with its Cigar Lake mine, which flooded last year, forcing the company to delay production.
Before the flood, Cigar Lake was expected to start production in early 2008 and contribute 18 million pounds of uranium a year at full capacity, or about 17 percent of world production.
Grandey said on Wednesday he expects to start pumping water out of the mine by the third quarter this year, and the expected production target of 2010 could change depending on how much damage is found.
"We've assumed there will be some damage to the underground infrastructure which is mostly just an excavation because there wasn't a whole lot of equipment down there," reiterating the company's previous forecasts that its share of capital and remediation costs should be about C$550 million.
The soaring uranium price has also prompted consolidation among some smaller-tier industry players, which has in turn driven stock prices higher and made the companies less appealing, Grandey said.
"As we look at it today given the euphoria about nuclear and uranium prices, we find it very difficult to find value," he said.
"You'll see Cameco become more active as some of these junior companies succeed in their exploration efforts."
