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    Uranium Prices Surge After Flood Closes Cameco Mine (Update3)

    By Christopher Donville and Gavin Evans

    Oct. 31 (Bloomberg) -- Uranium prices surged 7 percent to a record after Cameco Corp., the world's largest supplier, said a flood at an unfinished mine in Canada will delay initial shipments of the nuclear fuel by at least a year.

    Prices rose to $60 a pound from $56 in a weekly posting by Roswell, Georgia-based Ux Consulting Co., whose assessments are used as a pricing benchmark in the nuclear industry. Eric Webb, a company executive, said in an interview that the weekly gain was the biggest ever in the 20 years Ux has published prices.

    Uranium, the raw material in reactor fuel, has risen more than sixfold since October 2001, and the disruption at Cameco's Cigar Lake mine may compound already tight supplies. Investors speculate that demand from 28 reactors under construction around the world and another 62 being planned may outstrip available supplies. About 16 percent of the world's electricity came from 440 nuclear reactors last year, World Nuclear Association said.

    ``Anyone who sells at these levels is going to be very disappointed in the coming weeks,'' Kevin Bambrough, a strategist at Sprott Asset Management Inc. in Toronto, said before Ux Consulting released its latest price assessment. ``The price is going higher.''

    Ux Consulting's price has risen 80 percent in the past year. During the last record rally, uranium reached $43.40 in May 1978, said Thomas Neff, a nuclear expert at the Massachusetts Institute of Technology in Cambridge. Adjusted for inflation, that would be $111.65 in today's dollars, he said.

    Under Water

    Saskatoon, Saskatchewan-based Cameco said Oct. 23 that construction of its Cigar Lake, Saskatchewan, mine may be delayed by at least a year after a rock fall triggered a subterranean flood. The company had planned to open the mine next year.

    The delay at Cigar Lake will mean buyers who were counting on 7 million to 8 million pounds of supply from the new mine's initial production will have to find it somewhere else, analysts said. Cameco expects the mine to eventually produce 18 million pounds a year.

    Cigar Lake's proven and probable reserves of 232 million pounds have a gross value of about $13.92 billion, based on the current spot price. Rock at Cigar Lake on average is 19 percent uranium, a concentration exceeded only by the 25 percent grade at Cameco's deposit at McArthur River, Saskatchewan.

    The mine at Cigar Lake is 50 percent owned by Cameco, with the remainder held by AREVA Resources Canada Inc., Idemitsu Uranium Exploration Canada Ltd. and TEPCO Resources Inc.

    Update on Mine

    Cameco is scheduled to announce its third-quarter earnings today after the close of trading in New York and will conduct a conference call on Nov. 1 that may include new information about its flooded uranium mine.

    The rally in prices may prompt some companies to boost output or to acquire reserves.

    Bobby Godsell, chief executive officer of AngloGold Ashanti Ltd., South Africa's largest uranium producer, yesterday said his company is ``energetically pursuing'' a 40 percent increase in uranium output in the next year and may buy mines that produce the nuclear fuel.

    ``We'll look positively at opportunities to acquire uranium assets anywhere in the world,'' Godsell said yesterday in an interview.

    To contact the reporter on this story: Christopher Donville in Vancouver at [email protected] ; Gavin Evans in Wellington at [email protected]

    Last Updated: October 31, 2006 09:31 EST
 
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