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High costs to underpin uranium, spot price volatile
September 5, 2008 / 4:37 PM / 9 years ago

High costs to underpin uranium, spot price volatile

LONDON, Sept 5 (Reuters) - Long-term contract prices of uranium are expected to remain firm on higher production costs, but the thin spot market will be volatile for at least three years, participants at an industry conference said this week.

“The nuclear renaissance is definitely here but there are challenges ahead for global uranium miners,” said Sebastien de Montessus, executive vice president mining at Areva CEPFi.PA.

To meet future demand, the French nuclear group has increased its exploration budget over the past three years to $70 million euros from $20 million.

Montessus told the conference that rising energy and commodity costs for miners would delay some projects and a few could even be cancelled.

Rising costs would give a floor of about $35 to $45 per pound in most long-term contracts, said analyst Max Layton of Macquarie Bank.

Indirect costs, including remediation, social and environmental costs, also had increased and uranium mines would have to be larger in the future to meet them, Areva’s Montessus said.

The spot market meanwhile is expected to show greater price fluctuation.#

“There will be a lot of near-term volatility, although the long-term fundamentals are still overwhelmingly positive,” Cameco (CCO.TO) President Gerald Grandey said on the sidelines of the World Nuclear Association conference.

The volatility has been caused mainly by utilities going in and out of the illiquid spot market. This has been exacerbated by investor interest, funds buying spot material and one producer dumping material.

The price of spot uranium UX-U3O8-SPT hit a record of $136 per pound in June 2007, skyrocketing from just $7 in 2000 due to a revival of interest in nuclear energy. The interest has been caused by high oil prices and global efforts to cut carbon dioxide emissions.

Since June 2007, the weekly spot price has slipped to $64.50.

Reporting by Anna Stablum, editing by Karen Foster

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