The uneconomic GEM will become a cash cow,if this forecast is right.Pele is very undervalued.
Uranium price jump forecast
Yuriy Humber,Bloomberg News
Published: Tuesday, June 24, 2008
Theuranium industry's worst year is about to collide with a nuclearconstruction program in India and China that rivals the ones undertakenduring the oil crisis of the 1970s.
The result is likely to be a58 per cent rebound in uranium to $90 a pound from $57 now, accordingto Goldman Sachs JBWere Pty and Rio Tinto Group, the third-biggestmining company.
The price of uranium plunged 57 per cent in thepast year as an earthquake damaged a Japanese nuclear plant that's theworld's largest and faults shut down reactors in the U.K. and Germany.
Plansfor India and China to end electricity shortages will ripple fromnorthwest Canada to the Australian outback and the flatlands ofKazakhstan, the primary sources of uranium. India will start up threereactors this year, with another six due in 2009, in India, China,Russia, Canada and Japan. Uranium demand worldwide will rise as fast asoil this year, or 0.8 per cent, Deutsche Bank AG forecasts.
"Thefirst wave of growth is going to come from the emerging economies,"said John Wong, fund manager with CQS UK LLP in London, which has $10billion under management, including $150 million of uraniuminvestments. "People are starting to look at coal, at gas, at oil andseeing the energy prices go up, they wonder about uranium."
Becausemalfunctions shut reactors in Japan, the U.K. and Germany, nuclearpower production and uranium use dropped two per cent in 2007, only thethird time consumption has fallen since the 1970s, according to datacompiled by BP Plc, Europe's second-largest oil company by marketvalue. Prices are so low that some uranium mines are close to beingunprofitable, says Merrill Lynch & Co., the third-largest U.S.securities firm.
Prices will have to increase if uraniumproduction is to meet the rising demand, said Kevin Smith, head ofuranium trading at New York-based commodities brokerage Traxys.
Saskatoon-basedCameco Corp., the world's largest uranium producer, reported it spent atotal of about $45 Cdn to produce a pound of uranium in the firstquarter, compared with its average realized price of $40.85 Cdn apound. While Cameco, which also mines gold, still posted a profit forthe quarter, lower uranium prices are a problem for other companiesdeveloping new mines, according to Smith.
"There are a lot of production projects that are feeling the pain," Smith says.
Uraniumdemand was 66,500 metric tons last year, according to data fromDenver-based consultant TradeTech LLP. Consumption may jump 55 per centto 102,000 tons by 2020, forecasts Macquarie Group Ltd., Australia'sbiggest securities firm.
Uranium use now is 69 per cent greaterthan the 39,429 tons that was mined in 2006, the most recent datashows. The balance comes from inventories and decommissioned weapons. ARussian accord to export fuel recovered from warheads to the U.S.expires in 2013.
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