May 26, 2015

Cigar Lake Uranium mine commercial production and positive multiyear nuclear outlook

The Cigar Lake uranium project in northern Saskatchewan is now officially in commercial operation, Cameco has announced.

Mining at Cigar Lake began in March 2014, and the first processed product packaged in October 2014. The operation is expected to produce 6 million to 8 million pounds of uranium oxide (2308 to 3077 tU) this year, ramping up to full annual production rate of 18 million pounds per year (6920 tU) by 2018.

Cigar Lake is owned by Cameco (50.025%), Areva Resources Canada Inc (37.1%), Idemitsu Canada Resources (7.875%) and TEPCO Resources Inc (5.0%) and is operated by Cameco. Ore from Cigar Lake is processed at the McClean Lake mill, 70 km northeast of the mine site and operated by Areva Resources Canada.

Morningstar analyst David Wang has a positive uranium report. The global nuclear reactor fleet should grow 37 percent by 2025, which will drive 40 percent growth in uranium demand over the same time frame.

Because power plants buy several years’ worth of supply in advance, uranium prices could start to move significantly higher as soon as 2017. He thinks the spot price of uranium could hit $75 a pound in 2019 in real terms (adjusted for inflation), for a 100 percent-plus gain from recent levels of $36. "We expect new reactor capacity to drive the strongest uranium demand growth in decades," he says.

China's nuclear reactors there will grow from 23 to 86 over the next decade, predicts Wang. Its annual uranium demand will grow 167 percent, to 16,800 tons from 6,296 tons.

China is not alone. South Korea, India and Russia are also going to be backing away from coal and adding nuclear power in a big way to meet demand. Together, these three countries will increase their nuclear generating capacity by 54 percent over the next 10 years. Their annual demand for uranium will rise to 17,580 tons from 11,390 tons last year.

Big picture, there are 71 new reactors under construction, 174 planned or on order and 301 proposed, all on top of the 436 reactors in operation worldwide as of last October, according to the World Nuclear Association.

All of this means that annual global uranium demand will grow 61 percent to 238 million pounds by 2025, up from 173 million pounds last year, according to UXC Consulting, which tracks uranium trends.
Canaccord Genuity analyst Gary Lampard thinks the global uranium glut will last through 2022, citing high inventories. T. Rowe Price metals and mining analyst Rick de Los Reyes thinks the Fukushima disaster has turned public opinion so negative on nuclear energy that it's caused "permanent demand destruction" for uranium. Germany, for example, plans to take all its reactors off line by 2022.

Disclosure - The author does hold some shares of Cameco. At the time of writing less than 2% of portfolio.

A previous company mentioned on Nextbigfuture was Bluebird Bio, which is still held by the author.

SOURCES - Fiscal Times, World Nuclear News

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