Australia Anticipates lower Uranium Exports; ERA Climbs 15% for the Month

Uranium prices improved slightly in the international market amid a slight increase in nuclear energy demand in the United States and Japan, and across the globe.

The Prices of Uranium Futures (UXX) improved slightly on the Chicago Mercantile Exchange from the level of US$23.90 (Day’s low on 30th May 2019) to the level of 26.30 (Day’s high on 15th July 2019); however, the prices settled at US$25.95 on 16th July 2019.

The domestic production of uranium in the United States is on a decline since 2014 when the nation produced 4,891,332 pounds of uranium oxide. In 2018, the United States domestic production of uranium stood at 1,466,496 pounds of uranium oxide, down by over 39.96 per cent against the domestic production of 2,442,789 pounds in 2017.

The domestic production of uranium also declined on a quarterly basis, and in the first quarter of the year 2019 the domestic production of uranium in the United States stood at 58,481 pounds, down by over 74 per cent as compared to the 1Q CY2018, and down by over 95 per cent against the domestic production in 1Q CY2014.

On the demand side, the loading of uranium into the United States Civilian nuclear power reactor inched up from 2016 through 2018, which in turn, underpinned growth for uranium, and the Uranium Future prices recovered from its April 2018 low of US$20.90.

Over the falling domestic productions and higher inputs in energy generations, the United States is relying on the foreign supply, and while the United States is fetching the external supplies, the investors are monitoring the Australian uranium industry as Australia accounts for 18 per cent of the United States uranium imports.

Australia Uranium Industry:

Australia is the third-largest uranium producer in the world, and it exports over 7,000 tonnes every year, and the United States is the key consumer of the Australian uranium supply along with France and Russia.

The Australian Department of Industry, Innovation and Science (or DIIS) anticipates that the uranium prices would witness a growth by 2021 as the Australian production would underpin a downfall amid the scheduled closure of the Ranger mine at the starting of 2021.

In the March 2019 quarter, the low prices of uranium hindered the investment in the exploration, and as per the data, the uranium exploration marked an inflow of $2.3 million during the first quarter of the year 2019, which was down by over 36 per cent as compared to the previous quarter investment of $3.6 million.

The Production Scenario:

The Ranger uranium mine, which is operated by the Energy Resources of Australia Limited (ASX: ERA), is set for closure at the beginning of the year 2021, which in turn, would reduce the output of uranium and would hamper the supply.

Over the potential loss of supply, the DIIS forecast the production to fall over time, which in turn, is anticipated to reduce the export volumes from 2019-20. However, the investors should monitor the development of the Yeelirrie mine, which was taken from BHP by Cameco Group in 2012.

The Yeelirrie mine in Western Australia sits upon a massive uranium deposit in Australia, and once operational, the mine has the potential to deliver about 3,850 tonnes of uranium oxide for around fifteen years.

Cameco Australia secured environmental approval from the Commonwealth Department of Environment and Energy and a provisional approval from the Western Australian state government; however, the mine is pending the final approval from the state government.

The export shortage of uranium from Australia and higher inputs of uranium in the energy generation, could support the uranium prices in the international market, which in turn, is attracting investors towards uranium stocks, which have uranium exposure.

The uranium plunge till mid-2018 from the beginning of the year 2017 has exerted tremendous pressure on the share prices of uranium players; and many uranium stocks are trading near their all-time low, which in turn, could make them attractive to certain investors.

Apart from the depressed stock price, the projections of uranium shortfall and rise in demand are attracting investors toward uranium players.

ASX-listed Uranium Players:

Energy Resources of Australia Limited (ASX: ERA)

ERA is an Australian Securities Exchange-listed uranium oxide miner and processer. The company is the operator of the Ranger uranium mine, which is estimated to mark a closure by 2021. However, the company also holds two undeveloped uranium resources, namely Jabiluka and Ranger 3 Deeps. The Ranger 3 Deeps is estimated to host a mineral resource of 20 million with an average grade of 0.244 per cent uranium oxide, which would account for approx. 43,860 tonnes of contained uranium oxide.

June 2019 Quarter Highlights:

ERA produced 411 tonnes of uranium oxide during the quarter and mined 528k tonnes of ore, which was 13 per cent down as compared to the March 2019 quarter. The mill head grade of uranium oxide stood at 0.09 per cent during the June 2019 quarter, which in turn, underpinned a decline of 10 per cent from the previous quarter.

The production of uranium oxide during June 2019 quarter witnessed a decline of 22  per cent against the previous quarter, which as per the company, is majorly due to less ore milled during the June 2019 quarter amid lower plant utilisation due to maintenance performed by the company in May 2019.

As per the current mine plan, ERA is utilising low grades, which in turn, could justify the lowered production during the June 2019 quarter. The depletion of higher grades could justify the company’s stance to utilise the lower grades.

ERA kept the production guidance in the range of 1,400-1,800 tonnes for the year 2019, which remained unchanged against the previous quarter.

The company focused on dredge transferring tailings from the Tailings Storage Facility to pit 3 during the June 2019 quarter, under its progressive rehabilitation for the Ranger Project Area, and ERA also launched additional dredging capacity in the March 2019 quarter. The full commissioning of the dredging capacity is estimated for the third quarter of the year 2019.

Feasibility Closure and Ranger 3 Deeps:

ERA previously confirmed that for the rehabilitation of the Ranger Project Area, the company confirmed the approval and implementation of the Feasibility Study, which in turn, increased the provisions for the rehabilitation from $526 million to $830 million (as on 31st December 2018).

ERA is now in discussions with the Rio Tinto (ASX: RIO) for the funding, and as per the company, Rio advised that it would work with the company to ensure the ERA’s position to meet in full the likely future rehabilitation requirements of the Ranger Project Area.

Ranger 3 Deeps:

ERA stated that the development of the prospect continues to face a hurdle in the status quo of the uranium market, and if the market conditions do not revive, the development of the project would not be economically viable.

Price Actions:

The stock is in a downtrend from the level of A$18.724 (High in May 2009) over the previous uranium scenario. In July 2019, the stock recovered from the level of A$0.195 (Day’s low on 1st July 2019) to the present level of A$0.230 (closing price as on 19th July 2019).

In the last one-month ERA has provided a return of 15 per cent.


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