Kazakhstan uranium continues downward pressure on cost curve

Kazakhstan’s mine supply growth is expected to exert further downward pressure on the global sector near/mid-term cash cost curve, according to equity research firm Resource Capital Research’s (RCR).

Its June quarter report of global uranium companies said Kazakhstan ISR production reached 36mlbs U3O8 in 2009 up 62 per cent from 2008 levels (22mlbs) and is forecast to reach 47mlbs in 2010. Production is forecast to rise to 78mlbspa U3O8 by 2018.

“Production growth from Kazakhstan has been phenomenal in recent years…Production is low cost and frequently below US$20/lb. As evident earlier in the year, a floor price of around US$40/lb seems to be holding well but there is no significant utility demand to drive the market up,” said John Wilson, managing director of RCR.

The uranium spot price is currently trading at US$40.75/lb, down 1 per cent from 3 months ago (US$41.25/lb) and compares with US$44.50/lb at the start of the year. The Fund Implied Price (FIP) is US$40.50/lb, which compares with US$46.00/lb Jan 2010.

RCR’s outlook for the uranium price over the next few months is for it to continue to trade around the low US$40/lb mark. With the FIP currently trading at US$40.50/lb the spot price outlook is relatively flat.

Since April 1st, the FIP has traded in a range of ~US$35/lb to ~US$46/lb, with the low of US$35/lb coinciding with equity market weakness in April. The gradual downward drift in spot and contract prices over the past 12 months reflects in part the tremendous growth in new mine supply from Kazakhstan’s ISR projects.

“Timing of [utility] purchases from China continues to be the main unknown and has the potential to influence short-term price trends,” said John Wilson, managing director of RCR.

The long-term contract uranium price is US$58.00/lb. It is down from US$61/lb January 2010, though has been relatively stable, compared with the more thinly traded spot market price, since peaking at US$95/lb from May 2007 to March 2008.

Uranium companies

The Merrill Lynch Uranium Equity Index (a basket of uranium equities) is up 6 per cent over the past month, down 15 per cent over 3 months and down 16 per cent over the past 12 months.

The market valuation of Australian companies with one or more uranium projects is down 4 per cent over the past month, down 16 per cent over the past 3 months, and up 48 per cent over the past 12 months.

This compares with Canadian companies with one or more uranium projects, down 2 per cent over the past month, down 15 per cent over the past 3 months, and up 29 per cent over the past 12 months.

Source: Theajmonline.com.au.