Cameco Sees Japan Uranium Recovery: Commodities

Two years after the Fukushima disaster caused some countries to abandon atomic power generation, Cameco Corp. says Japan is stepping up uranium imports on speculation the government will allow more idled reactors to restart.

Japanese utilities are accepting consignments of uranium under long-term contracts after previously deferring some shipments, according to Cameco, the world’s third-largest miner of the radioactive metal. The Canadian company expects as many as eight reactors in Japan will come back online this year, Chief Executive Officer Tim Gitzel said.

“Japanese utilities are getting more clarity on what the future looks like,” Gitzel, 50, said Feb. 11 in a telephone interview from Cameco headquarters in Saskatoon, Saskatchewan. “Clearly they are on a path to restart.”

A recovery in Japanese buying may help the uranium-mining industry, which has canceled or deferred billions of dollars of investments as the price of the commodity fell as much as 40 percent. The tsunami and earthquake that struck the country in 2011 damaged Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant and led to the meltdown of three reactors, the release of radiation and the evacuation of 160,000 people.

Japan subsequently suspended operations of its remaining reactors. Having accounted for about 20 million pounds of annual global uranium demand before the disaster, Japan now operates just two of its 50 functioning reactors. Current global demand is 177 million pounds, according to Rob Chang, an analyst at Cantor Fitzgerald LP in Toronto.

Average Prices

The price of U308, the tradable form of uranium, is currently at $43.50 a pound, according to Metal Bulletin data. The price, which reached $138 in 2007, will average $58.20 this year, $63.75 next year and $69.17 in 2015, according to the average of analysts’ estimates compiled by Bloomberg.

Lower prices have slowed development of some mining projects. In October, BHP Billiton Ltd. deferred a decision to spend an estimated $33 billion to expand the Olympic Dam uranium mine in Australia, and Perth-based Paladin Energy Ltd. last year slowed expansion of a Namibian project.

Cameco fell 0.1 percent to C$21.08 at the close in Toronto. The shares have plunged 42 percent since March 10, 2011, the day before the tsunami, as the 26-member ISE-CCM Global Uranium index has dropped 47 percent. The company responded to falling uranium prices last year by abandoning its goal of doubling its annual output to 40 million pounds by 2018, dropping the target to 36 million.

Lower Profit

Last week Cameco reported a C$168 million ($167.7 million) writedown on its Kintyre project in Australia, reiterating that it wouldn’t be viable without a uranium price of about $67 a pound. The writedown helped push fourth-quarter net income down 83 percent to C$45 million, or 11 cents a share, from a year earlier.

Even amid public opposition in Japan to reactor restarts that included weekly protests last year, the victory in December of the pro-nuclear Liberal Democratic Party in parliamentary elections has raised expectations that more nuclear plants may come back online.

While countries such as Germany back away from nuclear power, restarts in Japan are important for the uranium and nuclear-power industries because the Asian nation has the most operational reactors after the U.S. and France, according to data from the World Nuclear Association. The nation of about 128 million people also is wholly reliant on imported uranium.

Stringent Requirements

Cameco expects six to eight Japanese reactors will restart this year after meeting more stringent safety systems enacted by the country’s Nuclear Regulation Authority, Gitzel said in the interview. Customers in Japan have traditionally accounted for about 10 to 15 percent of the company’s uranium sales, Cameco said yesterday in an e-mail.

Tokyo Electric Power Co. asked uranium suppliers to defer deliveries of the fuel after the Fukushima disaster, Hiroshi Itagaki, a spokesman for the utility, said this week by phone. Because not all suppliers accepted Tepco’s request, the utility is still receiving uranium deliveries, he said, declining to provide data on its uranium imports and consumption.

Hokkaido Electric Power Co., Chugoku Electric Power Co., Shikoku Electric Power Co. and Kyushu Electric Power Co. have kept buying uranium fuel under long-term contracts even after the Fukushima disaster, the utilities’ spokesmen said this week. Spokesmen at Tohoku Electric Power Co., Kansai Electric Power Co., Chubu Electric Power Co. and Japan Atomic Power Co. said they couldn’t immediately comment on the matter. Kohei Fukamoto, a spokesman for Hokuriku Electric Power Co., declined to comment.

New Rules

Japan’s NRA was set up post-Fukushima to provide evaluation independent of the trade and industry ministry, which oversees the nuclear-power industry. Last month, it approved heightened safety standards and new rules to assess earthquake and tsunami risk that may require years of reinforcement work for some idled reactors.

Gitzel isn’t overstating the potential for reactor restarts, even amid well-organized opposition to the resumption of operations, David Sadowski, a Vancouver-based analyst at Raymond James Ltd., said yesterday in a telephone interview.

“There’s a huge push for the restarts from industry, big electricity users, government and the utilities themselves,” Sadowski said. “And if you look at recent polls, even people in the towns around the nuclear plants, the ones who would be affected the most, are actually supportive of bringing them back online.”

‘Thinking Ahead’

Cameco, the biggest uranium producer after Kazakhstan’s Kazatomprom and Paris-based Areva SA, forecasts the number of operable reactors to increase globally by 80 in the next 10 years to 511, according to a Jan. 23 investor presentation on its website. Before Fukushima, the company forecast 110 new units over the following 10 years, Chief Financial Officer Grant Isaac said.

With 64 reactors now under construction around the world, Cameco expects demand for uranium to increase by an average of 3 percent a year to 2022, Gitzel said on a Feb. 11 conference call.

“These utilities, when they’re building reactors today, they don’t need uranium today, they probably don’t need it for five years -- but then they’ll need it for 60 years,” Gitzel said in the interview. “So they’re thinking ahead.”

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