Neil Hume reports that shares in big uranium producers ripped sharply higher on Thursday following news that the world’s biggest mine will be closed for most of 2018. In response to tough market conditions, Canada-based Cameco said it would suspend operations at its flagship McArthur River mine for 10 months from January because of a supply glut that has depressed prices and hit profits.
“With the continued state of oversupply in the uranium market and no expectation of change on the immediate horizon, it does not make economic sense for us to continue producing at McArthur River and Key Lake when we are holding a large inventory, or paying dividends out of proportion with our earnings,” said Tim Gitzel, Cameco’s chief executive. A glut has weighed on the uranium market since the Fukushima nuclear disaster in 2011, which led the closure of nuclear reactors in Japan and in other countries around the world. Uranium prices dropped 41 per cent last year.
Analysts said a 10-month suspension at McArthur River in northern Saskatchewan would remove 13.7m pounds of production from the market, the equivalent of 9 per cent of estimated global demand this year. “Given Cameco’s high levels of inventory, the direct market impact is limited, but we do expect the production cut to have an influence on market activities. Other producers selling into the spot market are likely to pull back and we expect any producers currently negotiating long-term supply agreements to use this to push for higher prices,” said analysts at BMO Capital Markets.
“On the other side, we would expect the decision to suspend the world’s largest and one of the world’s lowest cost uranium mines to raise security of supply concerns among utilities. Even so, the cut represents only 5 per cent of global excess inventories, so there is a risk that utilities may continue to feel well covered in the near term,” the analysts added. Shares Uranium Energy and NextGen Energy both climbed 20 per cent, while Cameco gained almost 6 per cent. In order to conserve cash, Cameco said on Thursday it would reduce its annual dividend from C$0.40 cents a share to C$0.08, a move that will save the company C$125m a year.
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