Commodity Info

Uranium Market Fundamentals

Uranium is a naturally occurring element found in trace levels within rock, soil, water, plants, food and the human body. Uranium recovered through mining is in the form of uranium oxide concentrate (U3O8), also known as “yellow cake” due to its yellowish colour. This concentrate, which generally contains more than 80% uranium, is shipped to a refinery for further processing into high-purity products such as uranium trioxide (UO3) or uranium dioxide (UO2). Uranium is found in many industrial products and applications (aircraft industry; light fixtures; fertilizers; photographic chemicals; medical radioisotopes; ceramic glazing), but its principal use is as a source of energy. About 15% of Canada’s and 16% of the world's electricity is generated from uranium in nuclear reactors. Canada generates over 12,600 MWe of electricity from 18 nuclear reactors, while another 421 reactors are in operation in 30 other countries. A total of 30 reactors are currently being built around the world, and another 91 are currently in the planning stages.

The uranium market has seen many ups and downs over the last 60 years, but never such a drastic and consecutive rise in price as witnessed over the past six years. Since 2002, uranium prices have soared on the premise of interim shortages, coupled with the rising demand for alternative energy sources in response to high gas and oil prices. Alternative uranium supply sources such as Russian armament stockpiles and reprocessed uranium-plutonium oxide fuel were sold down and there has been little past investment in new uranium mines. By May 2008, however, uranium prices dropped to $65/lb, half the peak of $138/lb seen in 2007, due to a projected short-term surplus.

Although industry insiders are forecasting the average price to be $65.10/lb in 2008 and $60.00/lb in 2009, a gradual and significant price increase is anticipated by 2012 due to new nuclear reactors being commissioned between 2013 and 2016. Moreover, with the global demand for electricity doubling that of 2004 by 2030, demand for nuclear capacity is likely to increase given an ever greenhouse-conscious population. Nuclear energy produces virtually no greenhouse gases - gases that trap solar energy and contribute to global warming.

After a decade of falling mine production to 1993, uranium output has generally risen and now comprises 61% of the global demand for power generation. Uranium mining companies have been scrambling around the world to bring new projects on stream to fill the gap between uranium production and estimated reactor requirements, but have been hit by implementation problems ranging from flooding at Cameco’s Cigar Lake project, to shortages of sulphuric acid at Uranium One’s Kazakhstan mines, technical issues at its Dominion Mine in South Africa, security threats at Areva’s giant Arlit uranium mine in Niger, as well as permit delays in various other countries. World mine output is expected to increase significantly by 2012, as major producers such as Areva, Cameco, Denison Mines, Rio Tinto and AngloGold Ashanti expand their existing production capabilities and as new mines come into production.

Canada is the world’s leading producer of uranium, accounting for 30% of the world’s total production. About 85% of Canadian uranium production is exported, solely for peaceful uses. Current uranium resources are estimated at 524,000 tonnes of U3O8 (444,000 t; 9% of world total), almost all of which is distributed amongst the three traditionally known major Uranium districts of the country: The Athabasca Basin, the Central Mineral Belt, and the Thelon Basin. The drastic change in global uranium market conditions starting in 2002 has spawned an unprecedented resurgence in uranium exploration across Canada, notably in Quebec where three new emerging uranium districts are being recognized: the Otish Mountains (James-Bay territory); the Minto Lake region (Nunavik); and the Ungava Bay region (Nunavik).

Majescor holds strategic land positions with promising early-phase exploration results in all three emerging uranium districts. The Company is pursuing a value-accretive growth strategy aimed at establishing itself as a leading uranium explorer in Quebec, one of the most exploration and mine-development friendly jurisdictions in the world.

Data sources: World Nuclear Association; Canadian Nuclear Association"

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