Uranium prices have burst through the $100 a pound level for the first time on concerns about supply following flood damage to one of Australia’s largest uranium mines.
Last week, ERA, which is controlled by Rio Tinto, said production from its Ranger mine in the Northern Territory would fall between 25 per cent to 35 per cent next year from its 2006 level following the heavy rainfall at the mine and processing plant in late February. It said output this year will be steady due to ore that was mined in 2006 and stockpiled.
Andrew Ferguson, manager of Geiger Counter, a uranium mining and exploration fund, said the Ranger mine accounted for about 10 per cent of the world’s uranium mine supply last year.
This is the second significant disruption to future uranium mine supplies to be caused by heavy rainfall in the past six months. The flooding of the Cigar Lake uranium project in Canada last October has pushed back its opening by two years. Cigar Lake was estimated to produce about 15 per cent of global mine supply from 2008, but its production has been pushed back to 2010.
The disruption to production at Ranger has pushed uranium (U3O8) spot prices up $18 to $113 a pound, according to Ux Consulting Company, one of the few publishers of uranium prices. Prices have more than doubled since the Cigar Lake incident and are about $2 below the record price seen in 1979 in inflation-adjusted terms.
The value placed on uranium reserves by companies has also lifted sentiment. In the latest uranium merger, Paladin Resources raised its bid on Thursday for Australia uranium prospector Summit Resources by 20 per cent, valuing it at $975m, a day after Summit sold a stake to French utility Areva.
Mr Ferguson said Areva’s offer valued Summit’s uranium reserves at $40 a pound, a price that was deemed very high last summer. “When you have one of the world’s biggest nuclear power companies prepared to pay that amount for the reserves, it suggests they may be thinking about securing adequate supplies for the future,” he said.
Analysts estimate there are about 450 nuclear power plants in operation, and almost 30 under construction. This represents one of the nuclear industry’s biggest expansion periods since the 1960s as it has regained acceptability by promoting itself as a way to combat energy security fears and increasing carbon emissions.
New power plants require more uranium when they start production then at any other time of operationAnalysts estimate that new reactors on average require around 1.8m pounds annually, at least in the initial years of operation. This compares with the 400,000 to 500,000 pounds consumed each year by existing facilities.
