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U3O8 daily spot price jumps 11.5% to $22.75/lb on Cameco production cut plan

The U3O8 daily spot price jumped to $22.75/lb Thursday from $20.40/lb Wednesday following Cameco's decision to suspend uranium production from its McArthur River conventional uranium mine and Key Lake Mill for 10 months starting in late January.

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The uranium production cutback may well remove sufficient material from the market to buoy prices, which have been languishing at a seven-year low, an analyst and industry consultant said Thursday in interviews.

Canada's Cameco said late Wednesday it will shut the facilities "due to continued uranium price weakness."

The price jump, amounting to to 11.5% in one day, was reported Thursday by price reporting company TradeTech.



Spot prices have trended lower since reaching about $70/lb just prior to the March 2011 Fukushima I accident. The U3O8 daily spot price has been below the $35/lb breakeven point most uranium producers have required since early 2015, according to TradeTech reports.

"We are not prepared to operate McArthur at 18 million pounds" of annual uranium production with U3O8 spot prices hovering below $21/lb, Tim Gitzel, Cameco's president and CEO, said during a Thursday telephone briefing for analysts and media.

Gitzel said Cameco will meet its 2018 contractual uranium delivery demands by drawing on its inventory and potentially buying U3O8 on the spot market, noting that prevailing prices for the material "are about as good as you can [get] from any mine in the world."

McArthur River's 18 million lb/year production level would equate to 1.5 million a month, yielding a 15 million reduction over 10 months.

Cameco's share of the production decline equals 12.6 million lb, giving its 70% ownership of McArthur River and 83% of Key Lake. Areva Resources Canada Inc. owns the remainder.

Rob Chang, a Toronto-based analyst with Cantor Fitzgerald Canada, said Thursday in a note it had forecast the mine would produce 16.4 million lb of material in 2018, which would equate to an overall 13.7 milion lb production cut during the 10-month closure.

Areva, in a statement Thursday, said the production suspension "will not affect uranium delivery to its customers."

"Based on supplier agreements and conversion needs, Cameco needs to keep about six months of sales in inventory at minimum. This roughly translates" into 13 million lb, Chang's note said, adding Cameco reported its third-quarter inventories at 27.6 million lb U3O8.

"Given that about 14 [million] lb are expected to be sold from inventory in 2018, the residual amount of 13 [million] lb is right at the minimum requirement," it added.

Noting that Cantor previously forecast world primary uranium production at 153 million lb, Chang's note said the Cameco production cut in 2018 "is the type of surprise event" that should support spot prices.

Dustin Garrow, managing principal of Nuclear Fuel Associates, said in a Thursday interview the Cameco production cut "moves forward the time when the uranium market moves into balance," noting that, currently, supply of material, including primary production, enricher underfeeding and tails re-enrichment exceeds demand by 18 million-20 million lb this year.

In addition, Garrow said Cameco's decision to potentially meet any contractual uranium requirements by buying material in the spot market could have a significant effect on spot market prices. "If [Cameco] buys, it likely would be in the market for 500,000 to 1 million pounds."

"If Cameco steps in and starts a consistent buying program in the spot market, we could see the price move into the $30s[/lb] and move somewhat higher," Garrow said, although he could not estimate the timing for such a price increase.

In addition, Garrow said he believes Cameco could extend the McArthur River shutdown if "we reach the end part of 2018 with a [U3O8 daily spot price] of $20[/lb]."

--Jim Ostroff, james.ostroff@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com