Cameco Corp. secured a deal with China to supply uranium to the world's fastest-growing nuclear power company, as prices for the metal rebound amid the global push for clean power.
Saskatoon-based Cameco, the world's second-largest uranium producer, said the deal is its first with China Guangdong Nuclear Power Holding Co. Ltd. since signing an accord with the state-owned company last summer. It is also the second long-term supply agreement Cameco has signed with a Chinese utility in the past five months.
The agreement to supply 29 million pounds of uranium concentrate to CGNPC until 2025 sent Cameco's stock up more than 4 per cent Wednesday, just shy of its 52-week high reached earlier this month, a level not seen for more than two years.
The deal highlights China's hunger to meet the fast-growing energy demands of its rapidly growing economy while aiming to curtail its dependence on coal-fired electricity plants.
CGNPC has the most ambitious nuclear power program worldwide as Chinese demand for nuclear power soars. The company currently operates three nuclear power stations and has 14 under construction and another nine units planned.
China recently surpassed the United States as the world's largest energy consumer. The challenge for China now is to find more clean energy alternatives such as nuclear power to try to address a serious pollution problem. China has a goal to increase its nuclear power to 6 per cent of all sources by 2020, from 1 per cent currently.
Cameco is one of a handful of uranium producers clamouring to help China secure uranium to feed what chief executive officer Jerry Grandey has called a "remarkable nuclear reactor construction program." Saskatchewan is rich with uranium, which is used as a fuel to power nuclear reactors.
"This company is probably better endowed in terms of resources, reserves than any other uranium company in the world. That's important if you have an aggressive nuclear program," Mr. Grandey said in an interview Wednesday, calling it a "very significant contract."
"We would expect over time we would become a bigger presence in a growing Chinese market," Mr. Grandey added, citing the company's plans to double its uranium production to 40 million pounds annually by 2018.
The value of the agreement was not disclosed, but is believed to be dependent in part on the forecast for uranium prices, which have been moving higher in recent months as a result of the steady stream of Chinese supply agreements.
French nuclear giant Areva Group recently announced a 10-year supply agreement with CGNPC for 20,000 tonnes of uranium valued at $3.5-billion (U.S.). While the terms weren't disclosed, analysts estimate the value is slightly more than the current spot price of about $60 a pound.
Uranium prices hovered between $40 to $45 per pound for the first half of this year, a sharp drop from a peak of just under $140 in mid-2007. Prices ran up quickly on speculation in the first half of 2007, then fell steadily afterward as a result of overproduction.
With China's rapid nuclear expansion program, as well as a move by India to build up its nuclear power capacity, prices are on an upswing for the first time in years.
At the end of August, 2010, the level of uranium imports to China were up three times over the same period in 2009, according to a recent report from TD Newcrest analyst Greg Barnes.
As a result of increased demand for uranium from China, TD Newcrest increased its 2011 forecast to $62.50 a pound from $50, and moved its 2012 and 2013 projections to $75 a pound.
Given that China has the fastest growing fleet of nuclear power plants in the world, BMO Nesbitt Burns analyst Edward Sterck said he expects Cameco to sign more agreements "as part of normal business" in the future.
Cameco also announced a deal in June to supply 23 million pounds of uranium concentrate by 2020 to a division of China National Nuclear Corp., another company spending billions on nuclear power projects. CNNC is reportedly planning to take public its subsidiary, CNNC Nuclear Power Co Ltd., next year to help to attract strategic investors.