First, Denison Mines announces plans to shed its oil and gas holdings and commit to uranium as its core business. Uranium was the mineral upon which now-deceased Denison founder Stephen Roman built the giant energy company. But the fickle uranium market has been a roller coaster. We count at least two boom-and-bust cycles since its heyday in the 1950s. It seems, however, that Denison under its new chief executive, the apparently decisive but publicity-shy Helen Roman-Barber, is banking on the latest bust in the market to turn into boom.
At first glance, that looks like one feisty move. On the spot market, uranium is fetching less than $12(US) per pound. (We are aware that spot prices and forward prices in this market diverge considerably, but even the forward market has been, until recently, listless, if not comatose, as far as producers are concerned.) It’s true that during bad times, metal producers will declare their bullishness in an effort to buck up sagging morale. But Denison’s move goes well beyond gesture.
The other development in the industry comes from the consumer side.
Saskatchewan Premier Grant Devine’s office recently disclosed that Cameco has contracted to sell about six million pounds of uranium to an electrical utility in Japan. The press release announcing the sale was vague on price, stating only that the total contract was worth between $150 million and $200 million. We guesstimate the contract to come in at very roughly between $25 and $33 per pound of uranium oxide. Keep in mind that this is a 10-year contract and deliveries are to begin in 1992. Still the uranium buyer, Chubu Electric Power, clearly does not believe uranium prices will malinger much longer.
We should emphasize this is a medium-sized contract from a medium-sized utility. Had a larger contract been sewn up with, say, Tokyo Electric, it could have been construed as an official declaration by Japanese authorities that, in their view, the uranium market is on the rise.
Only time will tell, of course. Yet Denison’s commitment and Cameco’s sale to a Japanese utility are at least encouraging.
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