Uranium Update
After five consecutive weeks of rising uranium spot prices at the end of 2008, the
market has witnessed a decrease of US$7 to US$48/lb U3O8. After speculators
pushed uranium to a record $147/lb in mid 2007, forced sales drove prices down
to $41/lb in October 2008. The sell off that forced prices down is beginning to
wane and we could see spot prices jump in 2009 as supply falls off, thanks to a
steady stream of project delays and deferrals from cash-strapped producers. The
long-term price remains stable at US$70/lb and we expect it to remain there
through the balance of 2009 (Figure 1).
We expect the growing number of planned nuclear power projects around the
world will support the nuclear power industry even if the global recession
continues through 2009/2010. Nuclear project announcements from Europe,
Japan and the United Arab Emirates have now pushed planned nuclear reactor
builds to 376. While reactor builds increase, we continue to see delayed mining
projects and production cut backs, including approximately 5.5m pounds of
production for 2008. With spot prices hovering around $48.00/lb, exploration
incentive is diminishing. This could be the catalyst for uranium prices to return to
the long-term trend once demand increases from new reactor projects and the
reason why long-term contract prices remain well above the spot price. Demand,
which is directly linked to nuclear electricity generation, is approximately 174m
pounds per annum and is expected to grow by 3% per year to 226m pounds by
2017. Historic mine supply, which falls short of demand, remains stable while
secondary sources such as defence stockpiles make up the shortfall (Figure 2).
Since 1985, world uranium production has been below uranium consumption. The
resulting shortfall has been covered by a number of secondary sources. The

majority of world production is used as fuel in the generation of electricity in
nuclear reactors. Currently, 435 reactors with a combined capacity of some 370
GWe, require 174.0m pounds uranium oxide concentrate containing 147.0m
pounds of uranium from mines, stockpiles or secondary sources on an annual
basis. Capacity is growing albeit at a slow rate and reactors are also being run
more efficiently with higher capacity and reactor power levels.