The world’s largest operating uranium mine will be temporarily suspended, further disrupting a market “already coiled like a spring”.
In 2020, COVID-19 interruptions to uranium supply has doubled the structural deficit – the difference between supply and demand — to 40 million pounds.
That’s more than 20 per cent of annual uranium consumption.
Yesterday, major producer Cameco yesterday announced that production from Cigar Lake would be suspended – again — due to worsening COVID-19 conditions in Northern Saskatchewan, Canada.
This will take an additional 1.5 million pounds of uranium off the market for each month that Cigar Lake is suspended.
The uranium spot price has been treading water for several weeks between $US29-30/lb, after hitting a five-year high of $US34.25/lb in May, says Bannerman Resources (ASX:BMN) chief exec Brandon Munro.
“It has languished primarily because utility fuel buyers, exhausted after a rather challenging year, have been looking forward to catching their breath over Christmas before considering when and how to top up their inventory,” he says.
Regardless of whether (or why) the spot price surges on this news, the indirect impact will be important for equities investors, Munro says.
The strident re-rating of uranium stocks over the last two weeks was at risk of faltering over Christmas, in the absence of spot price gains or another catalyst.
“With this news we have both – and investors’ hope of addressing their FOMO [fear of missing out] during a pull-back has now been temporarily suspended,” he says.
The recent flood of money from Wall Street into uranium equities should be a warning sign of things to come, he says.
But the biggest potential rocket to the spot price is the capacity of hedge funds to invest directly into uranium itself.
“Dedicated uranium historians will recall Bob Mitchell’s Adit Capital, who was a first mover in 2004 making a bet on physical uranium by acquiring 2 million pounds at below $20/lb,” Munro says.
“By 2007 Bob’s fund returned 500 per cent to investors (after his well-earned fees).
“Investor holdings of physical uranium had increased to an estimated 40 million lbs at the peak of the last boom, exaggerating upward price movements during 2006 and 2007.”