Uranium Week: Canary In The Uranium Mine

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

What price is sufficient for curtailed production to start coming back on line? Paladin Energy may have just provided a little hint.

-Langer Heinrich restart assessment
-spot price stalling
-utilities stepping up

By Greg Peel

Australian-listed Paladin Energy ((PDN)) announced last week it will begin two studies aimed at optimising its Langer Heinrich uranium mine in Namibia in preparation for a restart decision. Paladin made the decision in May to put the mine into care & maintenance as a result of sustained low uranium prices.

The company’s CEO said multiple processing options for the mine will be considered in a prefeasibility study to be completed in 2019. The PFS would give priority to initiatives to strengthen the company's plan for a "rapid restart of Langer Heinrich once the uranium price has improved."

And they’re off…

Paladin has not made it clear just what uranium price is needed to prompt the restart of Langer Heinrich. The company wants to make the operation more efficient, lowering the cost of production, and the processing of vanadium by-product is also being considered as a result. Presumably the PFS will throw more light.

But the bottom line is the spot uranium price has now rallied 66% from its December 2016 low. That rally has been driven in the most part by reduced supply meeting new demand. Supply has been voluntarily reduced by producers through the curtailing of production in the face of too-low uranium prices. New demand has emerged from those very same producers having to buy uranium in the spot market to satisfy existing delivery contracts.

New demand has also emerged from investors looking to ride such a wave – a wave they have themselves contributed to.

At some point, that show will be over. At some price – and breakeven production cost varies for every producer – miners will make the decision they can return to positive cash flow and thus switch their mines back on. Supply will hence return to the market, and those producers will no longer be buyers in the market.

There will be no one price that will trigger such restarts. But Paladin Energy last week gave us a clue it may not too far away.

The rally in the spot price appears to have, for the moment at least, stalled. Industry consultant TradeTech’s weekly spot price indicator has now fluctuated between US$29.00/lb and US$29.25/lb in the last month. Last week saw six spot transactions completed totalling 700,000lbs U3O8 equivalent. TradeTech’s indicator fell US10c to US$29.00/lb.

Buyers included aforementioned producers but also utilities, who at the end of the day are the ones who actually consume the stuff.  Several utilities are currently considering purchases ahead of year end, TradeTech reports.

The number of utilities seeking indications for mid and long term delivery contracts is also growing. TradeTech’s term market indicators remain at US$30.00lb (mid) and US$31.00/lb (long).

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms