As I write, shares of
Cameco (NYSE: CCJ) are pushing to fresh
intraday highs, and are trading hands more than 8% higher
than Friday's close. What's going on with the uranium
powerhouse?
The fact that Canada and India are poised to sign a
nuclear cooperation agreement certainly doesn't hurt. The
Canada-based company recently deemed India "a large market
opportunity for any uranium fuel supplier." However, we need
to look to Australia for the proximate cause.
A couple of weeks ago, there was an incident at
BHP Billiton 's (NYSE: BHP) giant Olympic Dam
mine, which accounts for between 5% and 10% of global uranium
supply. A loaded ore skip fell to the bottom of an 800-meter
mine shaft, which a
Goldman Sachs (NYSE: GS) analyst described as
"one of the most serious incidents that can occur in a
haulage shaft." The spot price of uranium has been ticking
higher since that time, from an average of below $43 per
pound in September to above $47 today.
Only this week, with the release of BHP's quarterly
production figures, did the extent of the problem begin to
come into focus.
The
Australianfirst reported that the company had
declared
force majeureon some uranium supply contracts, and
may see production drop to 20% of capacity for up to six
months. BHP then confirmed the former point, and stated that
full output should resume by the end of March, with ore
hoisting at 25% of capacity until then.
The market for uranium is very thin, so it didn't take
much to move the spot price. The miners have jumped as well.
Denison Mines (AMEX: DNN) tacked on a decent
gain on strong volumes yesterday, as did various
Canada-listed miners like
Paladin Energy and
Uranium One .
The uranium market has seen some serious mine mishaps in
the past. Compared to the
floodingat Cameco's Cigar Lake mine, this looks like
pretty small potatoes. It's always possible that the damage
could be worse than expected, but I would not be rushing into
one of the uranium miners on account of this haulage shaft
hoopla.
Related Foolishness:
called the bottomin uranium earlier this year.
The company's quite the
trendsetter.
Don't miss the return of
big mining.
This article was originally published as
Why the Surge in Cameco?on
Fool.com
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