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Index / Uranium (Nuclear Minerals) / Exploration, Mining, Marketing, Acquisitions

5/12/2017 by mdc
Leia Toovey reports that While uranium prices post a fragile recovery she has seen a definite pick-up in exploration activity even as cost cuts and shutdowns of operating facilities have prevailed. The increased exploration activity may seem counter productive, but there is a clear answer in the economics of uranium mining. When the uranium industry boomed (prices high), miners were willing to explore and mine even at a high cost. But, that all changed when prices crashed.

Now, miners are seeking cost efficiencies, mothballing expensive mines while exploring for reserves with lower costs that will enable them to be competitive even if this downturn persists. CRU examination of global uranium mining costs showed that weighted average global site costs fell by $1 per pound in 2015 to $31 per pound. This was the first year of global mining cost deflation since 2010. Productivity improvements were one of the factors behind the lower costs.

CRU $31 per lb cost is somewhat positive as it puts many miners near profitable territory even in the current pricing environment. If, however, newer capacity hovers around this cost it could push the more expensive miners out of business. $50 has long been cited as a breakeven point for mining.

The latest EIA full-year report on the industry showed that as of 2015 in the U.S. the estimated uranium reserves were 66 million pounds U3O8 at a maximum forward cost of up to $30 per pound. While this means that the U.S. can compete on a global pricing schedule, it is important to note that under higher cost allowances the amount of mineable uranium increases dramatically. In the cost bracket of up to $50 per pound, there is an additional 100 million pounds of uranium reserves.

In order to survive, it makes sense for uranium companies to seek out lower-cost operations even if they are mothballing their higher cost operations. But this means that over the long run the lower-cost uranium production could put a lid on a big price rally.

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