TORONTO (miningweekly.com) – Although spot market pricing for uranium will likely remain volatile in the short term, Canadian producer Cameco Corporation is confident the longer term outlook for the nuclear fuel remains robust, CEO Jerry Grandey said on Monday.

“We are building our business on the expectations that the long-term price for uranium will continue to move toward a realistic equilibrium price as the nuclear renaissance accelerates,” he told analysts and investors on a conference call.

While the long-term price will be naturally be determined by supply and demand fundamentals, it will also depend on the value of the US dollar, Grandey said.

“Given some of the cost inflation that the mining industry as a whole and the uranium mining industry has experienced over time, and the declining US dollar, I think a lot of analysts have put that in the $50/lb to $70/lb range,” he said.

“And I guess our feeling is it wouldn't be outside of that range.”

Grandey said Cameco remains confident that the long-term fundamentals of the uranium market are strong, given the accelerating roll-out of nuclear power generation capacity around the world.

“This acceleration is particularly noticeable in rapidly emerging economies that require clean, base-load electricity on a scale to supply huge populations, that are modernising equipment,” he commented.

In India, Prime Minister Manmohan Singh has announced his intention to speed up an already ambitious nuclear build programme, while the World Nuclear Association has made several adjustments throughout this year as it tracks the number of nuclear reactors under construction in China.

The current estimates are that China will produce six times the amount of electricity from nuclear  sources in 2020 compared with today, Grandey said.

Elsewhere, Brazil, Turkey, Vietnam the UK, and the United Arab Emirates are picking sites for their nuclear programmes, while Belgium and Germany are taking steps to halt nuclear phase-out programmes adopted in the past.

US President Barack Obama has also endorsed an increased role for nuclear energy in addressing climate change.

In the third quarter, Cameco realised an average price of just $34,24/lb for its uranium, compared with $37,88/lb in the same period last year, and a spot price that traded in the $40s for most of the quarter.

This was mainly because of deliveries into old contracts with low fixed prices or ceiling prices that were timed during the third quarter, said senior vice-president for marketing and business development George Assie.

The company expects to realise higher prices in the fourth quarter, he said.

SHORT-TERM VOLATILITY

Currently, the spot price for uranium is reflecting to two key pieces of news that had opposite effects on market sentiment, Grandey commented.

First, the US Department of Energy announced late in July that it will sell uranium from stockpiles to fund an expanded and accelerated cleanup effort at its Portsmouth gaseous diffusion plant in Piketon, Ohio.

While the decision would have a dampening effect on uranium prices, the potential sale is already partly reflected in the market, Grandey said.

There is also still some confusion about how the uranium would enter the market, and the process requires a number of approvals.

“This has got a long ways to go,” he commented.

Secondly, the world's biggest miner, BHP Billiton, said last month that an accident at its Olympic Dam copper/uranium mine, in Australia, would affect uranium output at the operation and full output is only expected to resume in March.

“As Cameco has stated in the past, and as events of recent days confirm, it is very difficult for the uranium-mining industry to consistently produce at 100% capacity,” Grandey said/

“Notwithstanding these short-term events, the long-term fundamentals of the uranium market remain robust.”

CIGAR LAKE

Cameco has uranium mines, mills, conversion plants and exploration projects in Canada, the US, Kazakhstan and Australia. It also owns part of gold-miner Centerra Gold and has a stake in a nuclear power generation business in Ontario, Canada.

At its flooded Cigar Lake project, in Saskatchewan, the company announced last month that it has resumed dewatering activities.

The water level was at about 250 m below the surface as of Monday, and the pumping seems to be going according to plan, Grandey said.

It will take between six and 12 months to dewater and secure the mine, depending on the conditions found in the shaft and underground workings.

The company has not yet provided guidance on when production from Cigar Lake could begin.

Cameco is the operator of the Cigar Lake project, and owns 50%, while Paris-based Areva holds 37%, Idemitsu Canada Resources owns 8% and Tepco Resources owns the remaining 5%.

Shares in Cameco, which reported third-quarter financial results earlier in the day, declined 3% on Monday, to C$29,27 apiece by 15:30 in Toronto.