Denison expects spot uranium will close in on long-term price this year

TORONTO (miningweekly.com) - Canadian uranium producer Denison Mines expects that the spot price for uranium will narrow the gap with the long-term price for the nuclear fuel during 2009, president and COO Ron Hochstein said on Thursday.

The spot price of uranium decreased during the first quarter, from $53/lb at the end of December, to $42/lb on March 31, and continued to decline to as low as $40/lb in April.

The price has since strengthened to $51/lb this week.

The long-term price of uranium, however, remained steady at $70/lb in the first quarter, before dropping to $65/lb at the end of April.

"We expect to see the spot price trading much closer to the long-term price later this year, and believe the long-term price will remain near its current level in the short term, rising back to the $70/lb to $80/lb range in the mid-term," Hochstein said on a conference call.

Earlier this month, the biggest producer of the nuclear fuel, Cameco Corporation, revealed that it had increased its own spot purchases, and also commented that Chinese utilities have become significant participants in the uranium spot market.

Denison has uranium mining assets in the US and Canada, as well as exploration properties in Zambia and Mongolia, and the firm has been hard hit by falls in prices for the nuclear fuel.

The company is seeking to conclude additional long-term supply contracts, and has curtailed production to match contracted sales, rather than producing and selling uranium into the weak spot market.

The firm announced last month it had signed a new five-year contract, which will begin in 2011, and also expects to conclude an offtake agreement with Korea Electric Power Corporation (Kepco).

Assuming the Kepco deal closes, the company will have a total of five long-term contracts in place, Hochstein said.

"All but one of these contracts have floor prices, three of which are subject to escalation and protect us on the downside."

The company expects to be in a position to sell 1,2-million to 1,3-million pounds of uranium in 2009, including 500 000 lb to 600 000 lb from US production.

Contracted sales currently stand at 790 000 lb in 2010 and 1,2-million pounds in 2011.

Hochstein emphasised that the company, which has four of its US mines on care and maintenance, will continue to avoid production of uranium that will be held in inventory or sold below cost.

The agreement with Kepco, which also includes a proposal that the Korean utility will buy a 19,9% stake in Denison, is expected to close by June 15.

Denison chairperson Lukas Lundin is currently serving as interim CEO, until a replacement is found for Peter Farmer, who stepped down at the end of last month.

LOSS NARROWS

On Wednesday evening, Denison posted a net loss of $1,33-million for the first quarter of 2009, compared with a $10,5-million loss in the same period of 2008.

Revenue rose 21% year-on-year, to $22-million, after the company increased sales from its US mines, to 225 000 lb from 50 000 lb a year earlier, although sales from Canadian operations declined.

The firm sold 98 000 lb of uranium from its Canadian mines, compared with 147 000 lb in the first quarter of 2008.

Denison realised an average price of $66,03/lb for US sales and $49,91/lb from uranium produced in Canada.

Shares in the company rose 4,05% on Thursday, to C$2,31 apiece by 12:35 in Toronto.