Uranium bulls are snorting and stamping the ground as world prices rise towards the $US100 a pound level.
The bullishness will have a chance to be expressed publicly later this week at the Paydirt 2007 Uranium conference to be held in Adelaide on Thursday and Friday of this week.
The conference will be held against the backdrop of the firming world price; the changing debate about uranium thanks to fears about global warming; the small shift in sentiment in Australia as the Howard Government has pushed the idea of nuclear energy, and of course some corporate activity such as the Paladin merger proposal with Summit Resources.
In its recent 2007 outlook paper the highly respected Federal Government forecaster, the Australian Bureau of Agricultural And Resource Economic (ABARE) boosted its price forecasts past the $US90 a level mark.
While several leading investment banks, most notably Goldman Sachs JB Were, are reported to have upgraded their price projections for this year and 2008 to more than $US90 a pound, forecasts that could prove conservative.
ABARE said that “Despite a substantial forecast increase in global uranium mine production in 2007, the spot uranium price is forecast to increase by 91 per cent to average over US$94.2 per pound.
“With secondary uranium supply forecast to fall and global reactor requirements to increase, the current tight supply demand balance in the uranium market is expected to persist throughout 2007.
“In 2008, the spot uranium price is forecast to increase by a further 10 per cent to average US$103 per pound (in 2007 dollars).
“Although total supply of uranium (mine production plus secondary sources of uranium) is expected to exceed consumption in 2008, uranium prices are expected to remain high until there is consistent evidence that mine production is sufficient to meet uranium requirements.”
Those forecasts have made the corporate side of the industry sit up and revise their outlook for uranium.
ABARE said that “With production and export prices both to increase in 2006-07, Australia’s export earnings are forecast to increase by 33 per cent to $726 million”.
Compared to the mineral giants, such as copper, zinc, iron ore and coal that’s not much.
The ABARE forecasts project a doubling in export income between now and 2011-12: that’s impressive but again it’s dwarfed by the sheer bulk and volume of exports and earnings of those other minerals.
“But the price and income increases are sharp and indicative and that’s driving stockmarket activity and activity in the field.
ABARE said “In 2007-08, Australia’s mine production is forecast to increase by 11 per cent to 11 500 tonnes, stemming largely from the commencement of production at SXR Uranium One’s Honeymoon mine.
The Honeymoon mine is expected to commence production in the first quarter of 2008, and will eventually ramp up to an annual rate of 400 tonnes U3O8 a year.
“In addition, Energy Resources of Australia is planning to construct a plant at the Ranger mine that will enable the processing of stockpiled lateritic ore (ore with high clay content).
The new plant will enable the Ranger mine to produce an additional 400 tonnes U3O8 a year, with the first lateritic ore scheduled for processing in the first quarter of 2008.
“Over the remainder of the projection period (to 2011-12), Australia’s uranium mine production is expected to be largely dictated by production from existing operations and, as such, is forecast to remain relatively steady at 11 000-12 000 tonnes a year.
“Only a number of relatively small projects such as Energy Metals’ Bigrlyi project and Compass Resources’ Mount Fitch project, both in the Northern Territory, have been included in the medium term projections for Australia’s uranium production.
“There are a significant number of undeveloped uranium deposits in South Australia, Queensland and Western Australia. However, the current policy of governments in these states does not allow the development of additional uranium mines.”
That’s a reminder of why the forthcoming ALP Conference could see a dramatic change for the uranium industry because of growing pressure on the State ALP Governments to change their restrictive policies.
Take a look at a roll call of projects that are well-known but blocked in some of those states. Here’s ABARE’s list.
“If state government policies on the development of new uranium mines were to change, projects such as Summit Resources and Paladin Resource’s Valhalla project in Queensland, Mega Uranium’s Ben Lomond project in Queensland, Marathon Resource’s Mount Gee project in South Australia and Nova Energy’s Lake Way and Centipede projects in Western Australia could be developed reasonably quickly.
“If there were an easing of current state policy constraints in the next year or two, Australian uranium production toward the end of the outlook period could be greater than projected.
“BHP Billiton’s Olympic Dam has the world’s largest resources of low cost uranium (extractable at less than US$40/kgU). BHP is currently considering the potential to increase uranium production threefold (to 15 000 tonnes U3O8 a year) from 2013.
“Since the scheduled completion of the expansion is beyond the outlook period, it has not been included in the projection of Australian uranium production. Australia’s real export earnings are projected to reach $1.4 billion in 2011-12, reflecting increased export volumes and higher assumed contract prices.”
And even though many in the mining and finance industries find politics boring the real story for the next couple of months will be the brawl/debateat the ALP Conference and in arguments between the Federal Government and the Opposition on uranium.
Abare said that “World uranium oxide (U3O8) prices averaged US$49.30 per pound in 2006, an increase of 73 per cent over the a
