Posts on this website are general "tips" and nothing more than that and should never be used to make an investment or trading decision. All information should be carefully cross-checked against official sources for accuracy.

Accident at BHP's Olympic Dam will curtail Uranium output for ~ 6/12

October 21st, 2009

Lots of stories about BHP’s major accident involving the semi destruction of it main mine shaft by a couple of rogue skips that damaged the lifting mechanism, the overhead fly-wheel as well as the shaft itself are now in the media.

BHP now has to rely on a much smaller secondary shaft to bring mined material to the surface… consequently BHP has declared force majeure – a declaration of not being able to supply to its customers due to circumstances beyond its control.

This coupled with ERA’s problems has lead to a situation where emerging uranium producer Paladin has risen markedly. Another likely to benefit is Australia’s Extract ASX:EXT that is proving up a multimillion pound deposit that some say will reach 500m pounds of uranium at quite exciting grades in Namibia. Paladin is of course just about to produce substantial uranium and consequently well placed as seen by its share price rise over the last few days.

Namibia is a uranium hot spot with several Australian compnaies having major uranium prospects and projects underway. These include BMN, TOE, EXT, DYL.

Below is a story from Reuters….

Uranium miners’ shares leap on Olympic Dam force majeure
By Cameron French of Reuters
TORONTO – Shares of uranium producers have raced higher, as an apparent declaration of force majeure at the massive Olympic Dam mine in Australia suggested uranium prices could jump.

Shares of Canadian uranium major Cameco Corp climbed more than six per cent, while those of other international producers climbed between seven per cent and nearly 10 per cent.

According to The Australian newspaper, mine owner BHP Billiton plans to advise copper and uranium customers the mine will be down for an extended period because of damage to equipment at the main shaft earlier this month.

The mine produces about 4,000 tonnes of uranium annually, which accounts for a bit less than 10 per cent of global mined production. The damaged Clark shaft handles about 80 per cent of Olympic Dam’s production capacity.

Such a loss of production would be expected to drive up prices in the thin uranium spot market as BHP’s customers would have to seek alternative sources of supply.

“It looks like the market’s assuming the worst,” said Simon Tonkin, an analyst at Thomas Weisel Partners Canada.

Weekly spot prices UX- were last calculated at $US46 a pound, according to Reuters data.

Late in the session, Cameco shares were up 6.7 per cent at $C32.48 on the Toronto Stock Exchange, after touching a year high earlier in the session.

Australian-based Paladin Energy was up 9.7 per cent at $C5.10 on its Toronto listing, while Uranium One , which is focused in Kazakhstan, rose 7.5 per cent to $C3.31, and Denison Mines surged eight per cent, to $C1.90.

In the options market, the volume on Cameco was six times the average daily turnover with about 16,000 call options traded at mid-afternoon. This was seven times the number of its puts, according to option analytics firm Trade Alert.

Call options let investors buy a company’s shares at a fixed price within a specified time period, while put options are options to sell.

BHP is expected to provide an update on damage to the mine on Wednesday in Australia.

In addition to the uranium production, analysts have estimated the global copper market stands to lose up to 50,000 tonnes of supply this year due to the incident.