The theory of commodity supercycles clearly explains why supply has lagged behind demand and will continue to do so over the coming years. But there is another story behind the supply shortage in uranium.
Uranium deposits often occur in geologically fragile areas. In other words, uranium mines are susceptible to disruptions. This is a risk with any mine, but the risk is higher with most uranium mines. Just look within the last eight months — two major mines have been flooded, which caused significant delays in future production.

The two mines are Cameco’s Cigar Lake operation and Energy Resources of Australia’s Ranger mine.

Let’s start with the situation at Cameco. On Oct. 23, 2006, Cameco announced that its Cigar Lake operation had experienced flooding in parts of the underground mine due to a collapse of rock formation.

This mine was planned to come into production in 2008. After the flood, Cameco announced that production would be delayed one year. It looks like the company was a little optimistic, because it recently came out and said that the remediation process was taking longer than expected. It pushed the expected production date back to 2010.

The impact of this flood is very significant on the market. Cigar Lake had the world's largest undeveloped high-grade uranium deposit. The proven and probable reserves are estimated at 226.3 million pounds of U3 O8 , with an average 21% grade. It is very easy to see the significance of delaying this planned production from the market.

The other operation mentioned was the Ranger mine. The incident here was different. The flooding at the Ranger mine was not a result of geological instability, but a result of Mother Nature. Tropical Cyclone George was the cause of the flooding at the Ranger mine:

This is a very significant loss in production. Energy Resources of Australia’s planned production was revised down to 7.5 million pounds of uranium. That’s a four million pound decline, or 4% of total world production. That four million pounds of uranium is estimated to be worth $340 million.

Energy Resources of Australia claimed “force majeure” on its contracts for sales. In other words, because of unforeseen events, it has exited ALL of its contract obligations for delivery of U3 O8 .

Situations like these are unable to predict and carry devastating implications for the supply of U3 O8 . Remember that these two incidents occurred within the past eight months. Although one can’t say when or where, you can bet that we haven’t seen the end of scenarios like the abovementioned ones.