Cameco Corp. is growing its uranium holdings even as other players back away from an industry stuck in a low-price trough for over a year.
Saskatoon-based Cameco, already the world’s largest publicly traded uranium producer, announced plans to buy the Yeelirrie uranium project in Western Australia for $430-million (U.S.), adding one of the country’s top undeveloped uranium deposits to its portfolio.
It was the second acquisition by Cameco since May, when it reached a deal to buy nuclear fuel broker Nukem Energy for about $300-million, including debt.
“We believe Cameco could be using the current period of disillusionment with uranium and the nuclear industry to build an inventory of larger projects that could find their way into the company’s development pipeline over the next decade,” Greg Barnes, an analyst with TD Securities Inc. in Toronto, said in a research report on Monday.
Global uranium demand is expected to grow over the next decade with ballooning needs around the world for clean energy to generate electricity, particularly in China and other fast-growing economies.
Prices for the material have been depressed since March 2011, when an earthquake and subsequent tsunami in Japan caused a meltdown at the Fukushima Daiichi power plant and saw the world’s second-largest uranium consumer back off from nuclear power, idling its entire fleet of reactors.
Uranium spot prices were trading at around $49 per pound on Monday, or 33 per cent below peaks of $73 reached in February. The industry expects it could be two years before a significant rebound, when new reactors start to come online.
Cameco is buying Yeelirrie from BHP Billiton Ltd., the world’s largest diversified miner which is stepping off from bets on uranium in the wake of Fukushima and a broader commodity market slowdown. Last week the company said it would delay a $20-billion expansion at Olympic Dam, a project in southern Australia that would supply 20 per cent of the world’s uranium if developed.
“Yes we are in a bit of uncertainty post-Fukushima, but clearly the future looks good for the business, and that is what drives us,” Cameco chief executive Tim Gitzel said by telephone. He would not comment on the price tag for Yeelirrie, other than to say it was “fair.”
“With the amount of resources that are indicated for the property and what we think we can get it going for and what we paid for it, we think its a very good deal for Cameco shareholders,” Mr. Gitzel said.
Even in the face of Fukushima, Cameco has not wavered from its stated goal of doubling uranium output by 2018, when it expects to produce 40 million pounds of the radioactive material per year. That is around the time when it expects some 95 net new reactors to be operating and securing contracts for uranium delivery.
Demand for uranium could be boosted as major projects like Olympic Dam are postponed due to cost pressures in the mining industry and as other supply streams dry up.
A key factor over the next two years will be an end in November 2013 to Russia’s Megatons to Megawatts Program, which for 20 years has supplied 24 million pounds of uranium per year to the market. The program saw high-enriched uranium converted from dismantled nuclear weapons into low-enriched uranium for nuclear fuel.
Mr. Gitzel could not say how much Yeelirrie will produce annually, nor when it could be in production, but a report from the Bank of Montreal’s BMO Capital Markets said first production could come in four to five years given the amount of work already done on the deposit by BHP.
“You know our customers that are building these new reactors now are not even interested in the next five years in what our production is, because it would take them five years to build their plants and get them going,” Mr. Gitzel said. “They are interested in 10-, 15- and 20-years from now, and whether Cameco will be able to sustain its production, and that is really what we are thinking of with some of these longer term acquisitions.”