In their Uranium Industry Report published Thursday, Haywood Securities forecasts primary uranium production at 113.5 million pounds this year, which is well below reactor demand as secondary uranium sources dwindle.
Haywood predicts that the second half of 2008 will see a rejuvenation of the spot price.
Meanwhile, demand continues to outstrip primary supply, while a sustained injection of capital is needed to meet required primary production increases, according to Haywood.
In the report, Haywood analyst Geordie Mark noted that production costs have increased across the sector with the uranium price representing only a small fraction of operating costs.
The World Nuclear Association had earlier forecast uranium production of 124.8 million pounds of U3O8 this year, which had been projected to be a 16.5% increase on 2007 production. However, Mark said that, based on the stilted flow of supply to venture on stream thus far due to various technical and infrastructural impediments, it is anticipated that 2008 production will rise only moderately above 2007 production.
Mark attributed the drop in production to: 1. ongoing production pressure within the sector; 2. Uncertainty of power and acid supply; and, 3. Technical nuances of bringing new production on-stream. Consequently, these factors provide greater potential for upward pressure on the spot price.
Haywood asserted that 2008 primary production will continue to fall short of future reactor demand. Thus, the entire sector will be ever more reliant on dwindling secondary supplies that progressively become more expensive, as well as technically, and politically difficult to extract.
These factors will continue to support uranium prices into the future, where geopolitical interests will become ever more focused on security of domestic supply, Mark suggested. This is particularly pertinent given that the major producers (Canada, Australia, and Kazakhstan) have little domestic demand.
Primary uranium production has failed to deliver at estimated forecast rates over the last few years, and 2008 appears to be no except with Q1 production data being lower than either the forecast estimates and/or the previous quarter for a range of operations owned by Cameco, BHP Billiton, Denison Mines, Energy Resources, Australia, Paladin Energy, AngloGold Ashanti, Uranium One and Uranium Resources.
LONGER TERM OUTLOOK
Haywood asserts that the public's quest for a cheap, cleaner alternative to hydrocarbon-based energy production is being met with a measurable change in view and broader acceptance of nuclear power generation by the general populace.
Popular acceptance equates to a shifting political outlook on nuclear policy leading to potential changes in nuclear power production policy in both: countries ramping down future production (e.g., Sweden and Germany, as well as those countries considering a nuclear future. These motions are leading to a shift, a rebalance in sources used for future energy supply leading inexorably to a greater role for nuclear energy; and a sustained nuclear renaissance.
Nevertheless, Mark acknowledged that future growth is at a bottleneck that continues to narrow and lengthen due to infrastructural impediments, political and NGO engagement, and an over reliance on second source material.
Haywood advises that, in the midterm, increased uranium production capacity is going to be largely derived by the expansion of current mines, or the exploitation of deposits in currently producing countries, such as Kazakhstan, the United States, Canada and Australia. This is primarily due to infrastructural, regulatory and community support that is in place to expand and/or develop mines in locations with a ready draw on personnel currently engaged in mining, Mark suggested.
New long-term nuclear capacity will be driven mainly from China, India, Russia, and the United States, Haywood suggests. The Gulf States, mainland Europe, Africa and other counties will also increase nuclear generating capacity at a smaller rate
In their report, Haywood predicts that the next uranium companies to move to producer status within the next three years will originate from U.S. operations. The rationale is that the USA was the primary producer of the world's uranium, and thus is a producer with a regulatory framework and a well established infrastructure that can be employed to bring projects into production rapidly, according to Mark.
The U.S. uranium projects may be small at under 2 million pounds of U3O8 of annual production. The mostly likely states that will experience increased production are Colorado, Utah, Wyoming and Texas, Haywood predicts. Despite this production, the U.S. will still have significant need for uranium.
In the meantime, Haywood forecasts that primary production to 2015 will continue to rely on secondary supplies, which is unsustainable, and particularly acute in an environment seeking to expand nuclear energy capacity.