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« SK Option Trader Passes 500% Return Since Inception | Main | Japan, Under Pressure, Backs Off Goal to Phase Out Nuclear Power by 2040 »
Thursday
Sep202012

Uranium execs cheer Olympic Dam decision

 

BHP Billiton's decision to scale back a $US30 billion ($28.9bn) expansion of its Olympic Dam mine and sell its Yeelirrie uranium deposit in Western Australia sent an unambiguous signal: it didn't like prospects for the nuclear fuel, according to The Australian.

For executives in the uranium industry, however, BHP's move is something to smile about at last.

Potential for a flood of new uranium supply from Olympic Dam coming on to the market towards the end of the decade has long spooked investors and contributed to the spot price of U308, the most actively traded compound of the nuclear fuel, staying below $US50 a pound mostly since the Fukushima nuclear crisis in Japan last year.

Analysis from Morgan Stanley earlier this year signalled that greater production from Olympic Dam would weigh heavily on the pricing threshold that aspiring miners require to bring new mines on stream - known as the incentive price.

At below $US50, margins for many proposed projects would have been too thin.

But with the Olympic Dam gorilla out of the room, Morgan Stanley says uranium miners can now look forward to an incentive price of $US69.50 a pound in 2020. Prices will accelerate from 2014 and 2015 as supply shortages become apparent.

"Although the timing of the Olympic Dam expansion was always uncertain, its mere existence was enough to keep the incentive price through to 2020 opaque," Morgan Stanley says in new research.

"The relative assurance it will not come to market before then provides a lot more clarity, and we believe market forces will soon begin to react."

The global uranium market depends on a small number of new projects, Morgan Stanley says, with the biggest being Cameco's Cigar Lake project in Canada expected to start production in 2014.

In Australia, Rio Tinto's Energy Resources of Australia unit is poised to begin production from Ranger 3 Deeps mine in the Northern Territory in 2017, while other projects such as Toro Energy's Wiluna mine are due to come on stream later.

Even with a new agreement in place between Russia and the US to recycle uranium in nuclear warheads for civilian use in power plants, Morgan Stanley thinks the uranium market will be in deficit from 2014 onwards.

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