Cameco’s Gitzel Says Uranium Supply Deficit May Loom

Cameco Corp., the world’s largest uranium producer, said some investors underestimate the potential for supply shortfalls to spur higher prices for the nuclear fuel.

Disruptions in mine production, the difficulty faced by development companies in raising funds for new mining projects, and the end of a Russian deal to supply uranium from scrapped atomic warheads may help create a supply deficit, Chief Executive Officer Tim Gitzel said in an interview.

“People don’t focus so much on the supply side,” he said Dec. 2 at Bloomberg’s Toronto bureau.

“They take every possible project, think it’s going to operate to perfection, and add it up and say ‘there’s lots of supply,’” Gitzel said. “It’s easier said than done.”

Uranium prices have slumped 23 percent since a magnitude-9 earthquake and tsunami struck Japan on March 11 caused a partial meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant. The crisis at Fukushima led to Germany’s declaration in May that it would close its reactors by 2022. Cameco, which is based in Saskatoon, Saskatchewan, in August cut its full-year global uranium demand estimate to 175 million pounds (79,400 metric tons) from 180 million pounds.

Investors are too caught up in a “post-Fukushima attitude,” said Gitzel, 49, who became Cameco’s CEO in July, replacing Jerry Grandey, 65, who retired.

Expansion Plan

Cameco, which in 2010 produced 22.8 million pounds of U3O8 -- a tradable form of uranium -- still plans to raise annual output to 40 million pounds by 2018.

Cameco rose 0.3 percent to C$19.43 at the close in Toronto. It has tumbled 52 percent in 2011, while the S&P/Toronto Stock Exchange Composite Index has dropped 9.8 percent.

Global mined uranium supply was 53,663 tons in 2010, according to the World Nuclear Association. That’s not enough to cover global demand, and so some utilities also use fuel recovered from Russian warheads under the Highly Enriched Uranium agreement, which has run since the 1990s.

Gitzel said Russia will withdraw from the HEU accord by the end of 2013, removing 24 million pounds of supply.

“There’s a lot, and I spoke to some of them this week, who think the HEU agreement is still going to be around,” Gitzel said. “We don’t.”

Chinese Reactors

There are 433 operable reactors globally and 62 under construction around the world, according to the WNA. China is building 26, plans to construct another 51 and has proposed 120 others, the WNA data show. Developing nations are adding nuclear capacity to meet growing electricity demand and to diversify away from power generated from oil, gas and coal.

A gigawatt of electricity, enough to power about 1 million U.S. homes, requires 200 tons of uranium a year at full operating rates, according to the WNA.

“The game’s not played in Europe anymore,” said Gitzel, who ran French nuclear company Areva SA’s global mining business before joining Cameco in 2007. “The game is played in Asia. China’s barely blinked post Fukushima.”

Although Germany plans to phase out nuclear power, there will be a net 93 new reactors by the end of the decade, Gitzel said. That compares with Cameco’s projection prior to the Japanese earthquake and tsunami of as many as 104, he said.

Potential Targets

Cameco is assessing potential takeover targets after it was trumped by Rio Tinto Group’s C$654 million ($643 million) takeover bid for Vancouver-based Hathor Exploration Ltd. Hathor is the developer of the Roughrider uranium deposit in the Athabasca basin in Saskatchewan, the center of Cameco’s operations. Cameco allowed its hostile offer for Hathor to expire last week.

“We’re always looking, we’re cashed up very nicely, and we have a solid balance sheet,” Gitzel said. Cameco is willing to look at potential bid targets beyond its current operations in Canada, the U.S., Kazakhstan and Australia, he said.

“We’ve got the resources and the ability to move quickly,” Gitzel said.

Gitzel’s predecessor Grandey said in November 2009 that Cameco has been interested in Australian uranium miner Paladin Energy Ltd. and been challenged by its valuation.

‘Same Concern’

“We have the same concern about valuation,” Gitzel said in the interview. “We’ve got some other pieces and projects that we like better.”

Cameco is on schedule to start production at its Cigar Lake mine in mid-2013. The Saskatchewan mine is scheduled to eventually produce about 18 million pounds of uranium a year, of which Cameco’s share will be about 9 million pounds.

Cigar Lake, which is on the site of the world’s richest undeveloped uranium deposit, was delayed by six years after an October 2006 underground flood at the mine. The uranium spot price more than doubled to a record $138 a pound in the eight months after the accident.

“You want to talk about a catalyst, that was it right there,” Gitzel said. “That just ran it way up.”

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