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Latest Headlines
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Nov 25, 2008 11:42:00 AM MST
Some uranium miners closing mines while others eye opportunities amid rebounding price (Uranium-Cuts)
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TORONTO _ As uranium miners delay projects, cut costs and place mines on care and maintenance to deal with current economic conditions, others are eyeing merger and acquisition opportunities and preparing for the next spike in uranium prices.
Denison Mines Corp. (TSX:DML) announced Tuesday that the mid-sized uranium producer and its partners are postponing development of the Midwest uranium project in Saskatchewan. The company also plans to temporarily shut down its Tony M mine in Ticaboo, Utah, and cut capital spending.
Earlier this month, Uranium One Inc. (TSX:UUU) said it has taken a US$2.8-billion writedown and is cutting costs across all operations after placing its Dominion mine in South Africa on care and maintenance.
Although uranium mining is considered a relatively recession-proof venture _ nuclear plants require uranium to operate regardless of demand for electricity _ the spot price for uranium has plummeted in recent months, from a high of $137 per pound in mid-2007 to as low as $44 in October before rebounding to $55.
Salman Partners analyst Pat Donnelly said the plunge in prices was the result of commodity funds and hedge funds "dumping whatever they could get out the door to get cash" as markets crashed last month.
In total, seven million pounds of uranium were traded in October alone, meaning 2008 is shaping up to be the busiest year for uranium trading in as decade, he added.
But as miners respond to low prices by delaying new projects and temporarily halting production at old ones, a real supply shortage could result, Donnelly said.
"We´re very, very bullish on uranium," he said, adding that demand has remained firm while supply has slumped.
"I think eventually that´s going to catch up and you´re going to see the utilities get worried and scramble to get uranium and that´s when you´re going to see the price spike."
Cameco Corp. (TSX:CCO) president and CEO Jerry Grandey said he believes the recent jump in prices from $44 a pound to $55 a pound indicates uranium prices are already rebounding.
"Forced sales drove the price down almost as quickly as it had gone up, and probably to a level on the downside that is as irrational as it was on the upside," Grandey said in an interview with The Canadian Press.
"Once (projects) shut down or defer or curtail, then what you see is you´re just sowing the seeds for the next rapid rise in uranium prices, so you´re accelerating that point in time when that will happen."
But he cautioned against too much optimism.
"I suspect there will be, in the next few years, continued volatility as utilities take advantage of what they perceive to be buying opportunities, and you still have private equity and hedge funds and uncommitted producers needing to sell in order to raise cash," Grandey said.
"So that tension between inventory building and the need to sell will, I believe, produce volatility in the market for the next several years."
Cameco, the world´s largest uranium producer, has managed to maintain a "healthy cash flow" because of a number of long-term contracts with locked-in prices, but it´s not immune to the current financial turmoil and is working to reduce its operating costs and capital expenditures, Grandey said.
But it has no intention to close any of its mines and, in fact, plans to expand production while keeping an eye out for merger and acquisition opportunities.
"Given the very healthy cash flow that we have, we will continue to look for opportunities that will emerge out of this financial turmoil," Grandey said.
"If we find the right opportunities, which I think we will, then we´ll use our resources to either form partnerships, joint ventures or outright acquisitions."
In announcing the delay at Midwest, Denison said that, based on current estimates, capital costs for the project have risen about 50 per cent from the previous estimate of C$435 million to about $650 million.
Denison said the postponement of Midwest will not affect the company´s recently announced 2009 Canadian production guidance of 750,000 pounds of uranium.
The at the Tony M mine will cut Denison´s expected U.S. uranium production for 2009 by about 200,000 pounds to between 1.2 and 1.6 million pounds.
On the spending front, Denison said it´s also reducing exploration and capital spending next year to C$5.1 million in Canada and US$1.6 million in the United States. In Mongolia, Denison will spend US$5 million and in Zambia approximately US$3 million.
In Tuesday afternoon trading on the Toronto Stock Exchange, Denison shares fell 36 cents to 99 cents, a of 26.7 per cent, in trading of 4.8 million shares.
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