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Cut In Supply From New Flooding Problems Could
Result In Further U3o8 Price Increase To Above $ 100 Per Pound In 2007
In the January 2007 update on the worldwide uranium industry, I
already predicted that growing short term shortage in supply could result in
a further price increase above $ 80 per pound in 2007, enhanced by the Cigar Lake flood, which has further delayed an
important source of new supply.
But with the U3O8 price already hitting a new high at $ 91 on March
13, compared with a year-end price of $ 72, one could question whether the
price is not moving too fast to be justified by the fundamental outlook.
In this respect, it should be born in mind that U3O8 has demonstrated
to be the best and most sustainable performing mineral in the current bull
cycle in mining. Contrary to oil and gas, and also base metal and precious
metal prices, the U3O8 price didn’t show any intermediate corrections
since June 2003, and has more than eight folded in price to date.
While in my view the 2010-2020 outlook on demand and supply would
justify a $ 100 plus U3O8 price by itself, not only Cameco’s
Cigar Lake Mine flood has been a catalyst to the price boost, but in addition, also flooding at Energy
Resources’ Ranger Mine operation in northern Australia, has.
The Cigar Lake Mine had previously been expected to start production
in early 2008, ramping to in excess of 18 million pounds U3O8 over a three to
four year period, equal to 12% of expected global production.
Production at the Ranger Mine had to be stopped because of extreme
rain fall. The Ranger Mine provides 11% of the world’s annual uranium
production and if flooding has caused extensive damage this could result in
the loss of 4 million pounds U3O8 production in 2007.
Consequently, although primarily the increasing shortage on the short
term (2007 – 2008), has accelerated U3O8 price increase, because of
ongoing growing demand for U3O8 from 168 new nuclear power plants expected to
be built within the next 15 years, I don’t expect a market correction
to occur under $ 100 per pound.
With uranium supply falling short of demand over the next decade and
nuclear energy also in Asia becoming an increasingly important source of
power, the outlook for a further price increase remains good, thereby
considering that nuclear power is the most cost effective and environmental
friendly alternative for electricity generating as a substitute for
traditional fossil fuels, with uranium only representing some 5% of the total
processing costs.
Although already outperforming all investment alternatives within the
last couple of years, it is quite obvious to me that the uranium market in
total is undervalued by at least 100% based on current parameters,
particularly compared with the oil and gas industry.
This is demonstrated by an estimated current total market
capitalization for the whole uranium equity market of less than US$ 60
billion, compared with single market capitalizations of US$ 332 billion for
Standard Oil and US$ 160 billion for Royal Dutch Shell, respectively.
The currently ongoing growth to maturity is attended by a growing
distinction in investment quality and speculative uranium plays. This is
demonstrated by Uraniumletter’s peer group of
the 20 worldwide major uranium companies, by market capitalization. When the
peer group was introduced a year ago, the lowest single market value started
at approximately US$ 80 million compared to US$ 260 million to date.
The ongoing strong increase in market capitalization has been enhanced
by the consolidation process within the uranium industry, both in North
America and Australia.
By :
Marino G. Pieterse
Editor, Gold Letter
International
Marino G. Pieterse
has been an independent financial analyst and gold specialist for more than
25 years. He is the chief-editor of Goldletter
International, the only gold investment market letter in English in Europe focusing on emerging gold regions in the world,
as well as reports on individually featured companies and special reports on
other metals, including uranium. You can receive Gold Letter
International’s reports for free by clicking on the
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