David Cates: Bad News Story from Cameco is Good News for Uranium
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Curtailments in production are not that surprising at this price level. The spot price for uranium is well below producers all in cost per pound. What is surprising is that they have started at high tier assets like Cameco’s McArthur River and Key Lake. This is not the asset class where you would expect curtailment. Investors should reflect on what this means since these are not marginal assets. This cutback is significant as 18 million pounds of production are coming off which is larger than KazAtomProm’s cutbacks.
Estimates of how long production will be shut down vary. David discusses how In the conference call Cameco commented on the potential for buying material on the market instead of mining their resource base.
We are going to see some additional production cuts from companies as contracts come off and not all of these mines will be restarted.
We need utilities to begin buying and taking in inventory. This is the only way the spot price will get strength. Cameco is a sad news story for Saskatchewan. However, its a good news story in that it shows the potential for real cutbacks. This could encourage other companies to do the same.
Mr. Cates feels that further production cuts by KazAtomProm are possible and something they are likely to evaluate again this year. Utility buyers need to understand this new narrative perhaps it will encourage a new long-term contract cycle.
He discusses how Denison has had fantastic 2017 with a large number of high-grade holes drilled. They expect updated resource estimates soon. They will take the results into a pre-feasibility study by mid-2018.