SOURCE: Resource Capital Research

Resource Capital Research

December 10, 2010 06:00 ET

Resource Capital Research -- December Quarter 2010: Global Uranium Companies

Equity Research Report

DENVER, CO--(Marketwire - December 10, 2010) -

Key Points

Uranium Market:

  • The uranium spot price is US$60.00/lb, up 25% from US$48.00/lb in September and nearly 50% higher from US$40.75/lb in June. The spot price is expected to consolidate at around current levels.
  • The recent price surge has been driven by Chinese buying; and some constraints to mine supply.
  • The long term contract uranium price is US$65/lb, up from US$60/lb three months ago.
  • There are 479 new nuclear reactors planned or proposed globally as of Nov '10.
  • Market confidence has increased in the growth outlook for Chinese reactor build following recent MOUs and long term sales agreements announced by the Chinese with Kazatomprom, Areva, Cameco and Paladin.

Uranium Companies:

  • The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) is up 12% over the past month, up 44% over 3 months and up 24% over the past 12 months.
  • The market valuation of Australian companies with one or more uranium projects is up 2% over the past month, up 46% over the past 3 months, and up 43% over the past 12 months.
  • Canadian uranium shares have strongly outperformed their Australian peers. Canadian companies with one or more uranium projects are up 24% over the past month, up 72% over the past 3 months, and up 72% over the past 12 months.

Resource Capital Research ("RCR"), an equity research company which focuses on small and mid size resource companies, today launched its major quarterly research report covering 18 global uranium exploration and development companies.

The report covers TSX/V and USA listed companies: Australian-American Mining Corp Limited, Bannerman Resources Limited, CanAlaska Uranium Limited, Extract Resources Limited, Hathor Exploration Limited, Paladin Energy Limited, UR-Energy Inc; and ASX listed companies: Crossland Uranium Mines Limited, Deep Yellow Limited, Encounter Resources Limited, Energia Minerals Limited, Energy and Minerals Australia Limited, Energy Resources of Australia Limited, Greenland Minerals and Energy Limited, Northern Uranium Limited, Peninsula Energy Limited, Thundelarra Exploration Limited, Toro Energy Limited.

To access the free summary report or to purchase the complete 92 page comprehensive report, go to www.rcresearch.com.au/reports. RCR also publishes gold, iron ore, rare and minor metals, and copper sector reports.

Equity market performance

The market valuation of Australian companies with one or more uranium projects is up 2% over the past month, up 46% over the past 3 months, and up 43% over the past 12 months. Canadian uranium shares have strongly outperformed their Australian peers. Canadian companies with one or more uranium projects are up 24% over the past month, up 72% over the past 3 months, and up 72% over the past 12 months.

In the past 1 month, the uranium mining majors have had positive share price performance: Cameco (CCO) is up 19% (3 month performance +40%), Denison Mines (DML) is up 26% (3 month performance +123%), Uranium One (UUU) up 21% (3 month performance up 59%), Energy Resources of Australia (ERA) up 2% (3 month performance -8%) and Paladin (PDN) up 12% (3 month performance +29%). ERA's recent price weakness and 12 month price decline (-46%) is attributable to two significant production downgrades at Ranger and announcement of a drilling program to review LOM reserve estimates.

The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) is up 12% over the past month, up 44% over 3 months and up 24% over the past 12 months.

Uranium price outlook

The uranium spot price is US$60.00/lb, up 25% from US$48.00/lb in September and nearly 50% higher from US$40.75/lb in June. The spot price reached a recent low of US$40.50/lb in Mar '10.

The recent surge has been driven by Chinese buying, the price impact of which has been exacerbated reportedly by the return of financial investors and hedge funds to the uranium market. There has also been an increase in market confidence in the growth outlook for Chinese reactor build following recent MOUs and long term sales agreements announced by the Chinese with Kazatomprom, Areva, Cameco and Paladin.

The impact of increased demand on the market has coincided with downgrades to production guidance at Ranger, among other producers. There have also been recent comments and indications of market discipline containing production growth in Kazakhstan (comments made when the uranium price was in the high US$40s/lb) and marginally reduced production guidance for 2010.

The spot market is expected to consolidate at around current levels and potentially move higher into 1Q11 as utilities come back into the market at year start. In terms of short term market drivers, traders continue to point to the potential impact of producer purchases. Utility purchases remain discretionary, though timing of demand from long term Chinese inventory build continues to be a factor and will continue to influence short term market trends, as will Japanese and Indian utility purchases which are expected to increase.

The long term contract uranium price is US$65/lb, up from US$60/lb three months ago. There is growing expectation that the contract price will move higher, potentially above US$70/lb, necessary to support development decisions at a number of advanced projects, particularly in Namibia, eg. the large scale Extract and Bannerman projects, and potentially Marenica and Deep Yellow.

World planned and proposed nuclear power reactors

Currently there are 441 nuclear power reactors in operation and 58 under construction. There are 479 new nuclear reactors planned or proposed globally as of Nov '10, up from 435 in Dec '09 (+10%). A total of 84 new reactors are scheduled to be commissioned by 2017.

As of Nov '10, countries with the largest number of planned and proposed new nuclear reactors are: China 159; India 60; Russia 44; USA 31; and Ukraine 22.

Since Dec '09, the largest increases in announced planned and proposed new nuclear reactors are in India, increasing from 38 to 60 (+22, up 58%); and China increasing from 125 to 159 (+34, up 27%).

Events of the past 3 months include:

  • Uranium One received its operating licence from the NRC for its Moore Ranch ISR project in the Powder River Basin, Wyoming with production expected in 2012. Further licences are expected to be awarded in the next few months to other operators with ISR projects in Wyoming.
  • Bannerman Resources -- released a BFS update for the Etango project, Namibia. Key parameters: heap leach, production of 5-7mlbspa U3O8, +20 year LOM, opex US$42/lb, initial capex US$638m (excluding mining fleet and working capital). Measured and Indicated resources are 148mlbs U3O8 grading 201ppm.

"The surge in the uranium price over the past 3 to 6 months reflects the confluence of a number of market factors. Specific factors include ongoing production issues at Ranger (among others), market discipline in Kazakhstan, and demand growth in China," said John Wilson, Managing Director of RCR.

About Resource Capital Research

Resource Capital Research ("RCR") (www.rcresearch.com.au) was founded in 2004 and is based in Sydney. RCR provides investors with in-depth reports on current investment opportunities in the mining sector both in Australia and globally. The focus is on small and mid cap resource companies, within the gold and uranium sectors, ranging from exploration stage through development and production. John Wilson, the principal of the firm and analyst, has over ten years' experience analysing mining companies in Sydney and on Wall Street, including for major investment banks.

The report is available at www.rcresearch.com.au. The next Uranium Sector Review will be published in the March Quarter, 2011. RCR also publishes the Gold Company Review, Iron Ore Company Review, Rare and Minor Metals Company Review; and a Copper Company Review.

Abbreviations: WNA - World Nuclear Association, ktpa - thousand tonnes per annum, lb - pound, Mlb pa - million pounds per annum, U3O8 - uranium oxide.

Contact Information

  • For further information please contact:
    John Wilson
    Analyst
    Resource Capital Research
    Phone: (+61-2) 9252 9405
    Email: Email Contact