Wednesday, September 22, 2010 at 08:57PM
Its thanks to one of our subscribers who alerted us to an article regarding the feasibility of a uranium project at the current price levels. In a nutshell Harmony are not too keen to push ahead with an investment into a uranium mining project while the uranium price languishes around the $45/lb level.
Although it makes sense to wait until uranium prices improve we have always found it surprising that prices have to rise to a pre-determined level before a project gets the go ahead. When the price triggers a go ahead it then takes years to bring the project on stream and the price may well have have soared and then retreated again as the project enters the production phase. The other problem is that a number of projects are triggered at the same time thus making it difficult to recruit the staff and the associated resources necessary to execute the project. In our humble opinion the economic advisers to these companies need to take a longer term view when putting together the business model for a particular project. Maybe then companies such as Harmony could build such projects when labour is available and not everyone and his dog are fishing in the same pool for plant and equipment etc. Easy for us to say as its not our money and uranium is out of fashion at the moment.
Anyway here is the bones of an article from miningmx.com:
CONSTRUCTION of the proposed R3.5bn Rand Uranium plant to be built near Randfontein could be delayed because of current low uranium prices.
That’s according to Harmony CEO, Graham Briggs, who was replying to a question posed after his presentation to the Denver Gold Forum being held in Denver, Colorado.
Harmony holds a 40% stake in the unlisted Rand Uranium into which it injected assets formerly belonging to the Cooke and Randfontein sections of the Randfontein mine including the high uranium grade Cooke tailings dump.
Briggs told the conference that: “Rand Uranium is a great project at a uranium price of $65/lb. At prices closer to $45/lb it is not so great and you probably would not make that investment.”
Uranium prices have been depressed for the past 18 months with the spot price currently sitting around $48/lb and the long-term contract price stuck at around $58/lb.
The contract price is the more important of the two because most nuclear power stations buy their uranium on long-term contracts to ensure security of supply.
A number of uranium industry executives – most notably Paladin Energy CEO, John Borshoff, – have predicted that a sharp rise in uranium prices is imminent because of looming supply shortages.
Jonathan Leslie, CEO of Extract Resources, which is developing the Rossing South project in Namibia, commented in Perth recently that: “Current sentiment towards the spot price is for a strong rebound in uranium concentrate prices over a two-year price horizon to satisfy the new growth in demand.
“Spot prices of around $70/lb can be expected to provide uranium producers with the right incentive to develop new supplies.”
Interviewed after his presentation Briggs confirmed to Miningmx that the current outlook for Rand Uranium was not good given present uranium prices.
He said a key issue would be whether Rand Uranium could negotiate long-term supply contract prices with customers that would be high enough to justify going ahead with the project.
Briggs added the Rand Uranium board was due to make a decision on the future of the project within the next two to three months.
He commented, “We have had the first pass estimate on the capital and that is now being reviewed to see if we cannot get it below R3bn.”
DRDGold executive Charles Symons told financial media during a recent visit to the group’s Ergo gold recovery plant near Springs that a price of $113/lb for uranium was required to justify a decision to restart the former Ergo uranium plant.
“Uranium is clearly not feasible for us at current prices but it’s an option should uranium prices ever get that high in future,” he said.
Said Briggs: “I don’t know the precise details of the Ergo operation but I would say the difference between the price they say they need and what we need is down to the grade of the dumps.
“The grade of the Cooke dump is more than double the average uranium grade found in all the other dumps on the Witwatersrand.”
To read the article in full please click here.
Harmony Gold is appearing on a screen near you and trades on the following stock exchanges:
Harmony Gold Mining Company has a market capitalization of $4.85 billion, a 52 week range of $8.73 to $11.37 and closed today on the NYSE at $11.32.
For disclosure purposes we do not any of this stock.
Over in our options trading den they have updated the chart to show all the closed trades as of today, so you can see exactly how it is going, please click this link.
Stay on your toes and have a good one.
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On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.
The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:
On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday. Drop by and take a look.
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