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Uranium's dead cat bounce as miners play chicken

Nuclear Monitor Issue: 

Nuclear Monitor #792, 2 Oct 2014,

Author: Jim Green − Nuclear Monitor editor

NM792. 4418 After languishing below US$30 / lb U3O8 through the middle of the year (a nine-year low), the uranium spot price has steadily increased to reach US$36.50 on September 22. Is this the beginning of a sustained upturn, or a dead cat bounce?

The upturn is believed to be driven partly by speculation that sanctions against Russia over its conduct in Ukraine could squeeze supplies − Russia produces only 5% of the world's uranium but is a major provider of enrichment services to many Western utilities. Another factor was a labour dispute at Cameco's McArthur River mine in Saskatchewan, Canada.1

In other words, the price increase has been driven by supply-side concerns and speculation instead of increased demand or even speculation regarding increased demand. UBS commodities analyst Daniel Morgan said in early September: "There's been a few supply-side issues which has been enough for a very modest price rise. What the market really needs is a demand-side driver to get the price going and in my view we don't have one at the moment."2

Macquarie Group's Stefan Ljubisavljevic predicts a uranium supply surplus for the next five years unless some unprofitable mines close.1 Raymond James analyst David Sadowski said in May that many utilities around the world "are sitting on near-record piles" of uranium.11 For example China has stockpiled about eight years' supply (at its current rate of consumption) while it may take Japanese utilities a decade or more before they exhaust existing stockpiles.12

The long term price, where most uranium business is conducted, was still languishing at US$44 / lb in late August, a six-year low.3

A number of mines have been put into care-and-maintenance over the past year, including Paladin Energy's Kayelekera mine in Malawi, and the Honeymoon mine in South Australia, owned by a Rosatom subsidiary. Many other planned mining projects have been cancelled or deferred or scaled down, and some uranium mining companies are being downgraded. Recent examples include:

* Rio Tinto announced in June that it would cut 265 of the 1,168 jobs at its Rossing mine in Namibia. In 2012, 276 workers at Rossing were fired. Production is to be reduced to just under 2,000 tonnes in 2014, down from 2,409 tonnes in 2013. Rossing Uranium Ltd. Managing Director Werner Duvenhage said: "We have to keep company operating to avoid care and maintenance or complete closure. We are significantly downgrading production targets."4

* Areva and the Nigerien government have agreed to delay the start of production at the Imouraren mine. Niger and Areva will create a committee to decide on a timetable for its start-up according to market conditions. Areva CEO Luc Oursel said: "In the current context, neither Areva nor Niger are interested in dumping uranium on the market that would not find a buyer."5

* Credit ratings agency Standard & Poor's has put French nuclear power group Areva on "creditwatch negative" and will soon decide whether to downgrade its credit ratings.6

* Moody's Investors Service said on September 3 that KazAtomProm, Kazakhstan's state-controlled mining company, might lose its investment-grade credit rating as a result of "weak pricing" and other issues.7

Miners playing chicken

Despite the closures and cancelled projects, many uranium mines continue to operate − and to operate at a loss. Macquarie Group estimates that around half the industry could be unprofitable at current prices.1 Thus global production increased by 7.6% from 2010−2012 and it probably increased in 2013 as well.8

Ongoing operation of loss-making mines is regarded as the least-worst option, preferable to putting mines into care-and-maintenance or permanently closing them. Benjamin Sinclair explains: "For one, starting and stopping mines can be expensive, especially with unionized labour. So it may be easier to ride out the downturn, especially if politics are involved. Furthermore, if the long-term outlook for uranium demand is promising, there may be incentive to keep production going. And finally, no one wants to shut down a mine only to see competitors benefit from a price increase – so the industry turns into a game of chicken."9

David Sadowski gives these reasons: "The three main reasons for continued global growth of uranium mine production are the persistence of long-term fixed-price sales contracts, the intransigence of government producers who believe that security of supply is more important than mine economics, and byproduct uranium production."10


The latest edition of the 'Red Book' − 'Uranium 2014: Resources, Production and Demand' − has been released by the OECD Nuclear Energy Agency and the International Atomic Energy Agency.8

According to the Red Book, the world's identified uranium resources increased by more than 7% since 2011, but the majority of the increases have been in categories with higher production costs. Overall resources (reasonably assured and inferred) as of January 2013 are estimated at 5.90 million tonnes of uranium (tU) recoverable at costs of up to $130/kgU.

In the highest cost category (<US$260/kgU or <US$100/lb U3O8), total identified resources increased 7.6% to 7.63 million tU. There has been a significant reduction of 36% in the <USD 80/kgU (or <US$30/lb U3O8) cost category, due to increased mining costs. The lowest cost category (<US$40/kgU or <US$15/lb U3O8) changed little since the 2012 Red Book.

At the 2012 level of uranium requirements, identified resources are sufficient for over 120 years of supply for the global nuclear power fleet.

Global production in 2012 was 58,816 tU and the Red Book projected a small increase to 59,500 tU in 2013.

In-situ leaching accounted for 45% of world production in 2012 and the Red Book estimates 47.5% in 2013. The remaining 55% was produced by underground mining (26%), open-pit mining (20%), co-product and by-product recovery from copper and gold operations (6%), heap leaching (2%), and other methods (1%).

From 2011 to 2013, uranium was produced in 21 different countries, with Kazakhstan, Canada and Australia the largest producers, accounting for 63% of world production. New countries may join existing producers, including Botswana, Tanzania and Zambia.

"Uranium miners have been hit harder by the Fukushima Daiichi accident than any other segment of the nuclear fuel cycle," the Red Book states, and Fukushima "has eroded public confidence in nuclear power in some countries and prospects for growth in nuclear generating capacity are in turn being reduced and subject to even greater uncertainty than usual."

To bring new resource to the market, "producers will have to overcome a number of significant and at times unpredictable issues ... including geopolitical factors, technical challenges and risks at some facilities, the potential development of ever more stringent regulatory requirements and the heightened expectations of governments hosting uranium mining. Sufficiently robust uranium market prices will be needed to support these activities, especially in light of the rising costs of production."

The Red Book projects that world nuclear generating capacity will increase by 7−82% by 2035; similar to the IAEA's most recent projections of 8% and 88% for the year 2030. The lower end of projections such as these tend to be reasonably accurate, in which case growth will be negligible − under 1% annual growth. Moreover, growth will become more difficult to sustain as the world's fleet of mostly middle-aged reactors becomes a fleet of mostly decrepit reactors.

Secondary supply

Mine production met 78% of global uranium demand in 2009 and 2010, and 85% in 2011, with the shortfall met by secondary sources.13 The Red Book states that production in 2012 amounted to about 95% of world reactor requirements (61,980 tU), with the remainder supplied by secondary sources including excess government and commercial inventories, blending down highly enriched uranium from the dismantling of nuclear warheads, re-enrichment of depleted uranium tails, and spent fuel reprocessing.

With secondary sources playing a diminishing role, the prospects for secondary supply constraints raising demand for mine production and thus raising the uranium price are also diminishing. And in any case secondary supply is "robust" according to David Sadowski.10

Uranium industry boosters promised significant price increases following the end of the US−Russia 'Megatons to Megawatts' program in December 2013. That didn't happen. The Red Book states: "Although information on secondary sources is incomplete, the availability of these sources will at least temporarily decline somewhat after 2013 when the agreement between the United States and the Russian Federation to blend down HEU to LEU suitable for nuclear fuel comes to an end. Limited available information indicates that there remains a significant amount of previously mined uranium (including material held by the military), some of which could feasibly be brought to the market in the coming years."

According to David Sadowski: "The end of the Megatons to Megawatts high-enriched uranium (HEU) deal was long anticipated to usher in a new period of higher uranium prices. But the same plants that were used to down-blend those warheads can now be used for underfeeding and tails re-enrichment. In this way, the Russian HEU-derived source of supply that provided about 24 million pounds to the market did not disappear completely; the supply level was just cut roughly in half. Meanwhile, uranium mines, in aggregate, have increased their output − even though prices are now well below average production costs."10


1. Rhiannon Hoyle, 15 Sept 2014, 'Uranium price rally unlikely to last'

2. Vivien Diniz, 4 Sept 2014, 'Uranium Price Continues with Bullish Behavior',

3. Frik Els, 25 Aug 2014, 'Uranium stocks follow spot price higher',

4. Felix Njini, 10 June 2014, 'Rio Tinto to cut 265 jobs at Rossing uranium mine',

5. Abdoulaye Massalaki, 26 May 2014, 'Areva delays Niger mine until uranium prices improve',

6. Geert De Clercq, 9 Sept 2014, 'S&P to decide in 30 days whether to downgrade Areva to junk',

7. David Wilson, 4 Sept 2014, 'Fukushima Specter Seen Easing as Uranium Rises: Chart of the Day',

8. OECD NEA and IAEA, 2014, 'Uranium 2014: Resources, Production and Demand',

9. Benjamin Sinclair, 22 Aug 2014, 'How Long Will it Take for Uranium Prices to Recover?',

10. Peter Byrne, 5 Aug 2014, 'Why predictions of uranium price boom flopped',


12. 16 May 2014, 'A reality check for the uranium industry', Nuclear Monitor,

13. Australian Conservation Foundation, 2012, 'Yellowcake Fever: Exposing the Uranium Industry's Economic Myths', Section 6: 'Declining Secondary Sources',