The Uranium Bubble: Supply Side

The almost exponential growth in the price of uranium began in 2005, a year which saw world uranium production fall short of world demand by around 40% (approximately 108 million pounds were produced when 178 million pounds were required). Taking this into consideration, it would not be unreasonable to assume that the hike in uranium prices was triggered by the fear of a uranium shortage. But why would prices only begin to shoot upwards in 2005 when, as mentioned in one of my earlier posts, uranium production has not met requirements since around 1987? I have no doubt that the shortage in supply was a contributing factor to the bubble but there appears to be a lot more going on beneath the surface!

Cigar Lake Mine (pictured below and coincidentally beneath the surface), located in Saskatchewan, Canada, is the largest undeveloped high-grade uranium deposit in the world. Construction of the mine began in 2005 and production was originally planned for 2007. The unhindered completion of this mine would have boosted uranium production and prevented demand and supply pressures pushing up price but this was not to be the case. In October 2006, a retaining wall collapsed the mine experienced a devastating water inflow which caused the mine to flood, and if that was not enough, a second inflow occurred during the first attempt to remove the water from the first flood! These events created great uncertainty around the future supply of uranium which could have acted as the catalyst for the price bubble. Cameco Corporation (majority owners of the mine) now anticipate production to begin in the fourth quarter of 2013 but given how often their production timeline changes, I wouldn't hold my breath. For a full article on the revised production timeline click here.

The Russian Megatons to Megawatts Program (for more information click here) is another factor which contributed to the uncertainty surrounding the future supply of uranium. The program was implemented in 1993 and was an agreement between the United States and Russia to dismantle Russian nuclear weapons with a view to converting bomb-grade uranium in to low-enriched uranium (LEU) for fueling American nuclear power plants. The program, which has so far seen 472.5 metric tons of bomb-grade uranium recycled into LEU will be completed in 2013 when the target of 500 metric tons (the equivalent of 20,000 warheads) has been reached. The completion of this program means that a valuable asset in uranium production will be lost, causing the supply and demand gap in the uranium market to widen.