SOURCE: Resource Capital Research

Resource Capital Research

July 06, 2011 06:00 ET

Resource Capital Research -- June Quarter 2011: Global Uranium Companies

Equity Research Report

DENVER, CO--(Marketwire - Jul 6, 2011) -

Key Points

Uranium Market:

  • The uranium spot price is US$54.25/lb (27 June), 25% below its mid March, pre Japan crisis level of US$67.75/lb, which was also a 12 month high.
  • The spot market is expected to trade in the range of US$50-$60/lb, with potential for further downward pressure in coming months.
  • The fund implied price (FIP) is US$48/lb, reflecting expectations of potential new supply to enter the market 2H11 from producers, funds and uncertainty over potential Japanese utility surplus dispositions.
  • The long term contract uranium price is relatively stable, and is currently US$68.00/lb (31 May), down 7% from US$73.00/lb (28 Feb).
  • The long term uranium market fundamentals are considered sound with expected strong and increasing demand for new nuclear power reactors, especially from China, USA, Russia, Ukraine and India.

Uranium Companies:

  • The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) is down 19% over the past month, down 28% over 3 months and down 9% over the past 12 months.
  • Some companies have registered outstanding share price performance gains over the past 12 months, despite the tough market conditions. These include Peninsula Energy and Greenland Minerals and Energy.

Analyst Comments:

"Notwithstanding the short term negative impact of market uncertainty on the sector, a number of uranium explorers and development companies have continued to advance promising projects and have been rewarded with strong share price gains over the past 12 months. The longer term fundamentals of the sector remain solid and many countries have publically stated their strong continued commitment to nuclear energy, most notably, and arguably of greatest influence, the US," said John Wilson, Managing Director of RCR.

"The key lesson from Japan's nuclear crisis may point to the need for, and benefit of, greater transparency and accountability of democratic governments, and stricter oversight of government agencies in general; in this case nuclear agencies specifically," said John Wilson.

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 14 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, Paladin Energy Limited, Ur-Energy Inc; and ASX listed companies: Alligator Energy Limited, Deep Yellow Limited, Energy and Minerals Australia Limited, Energy Resources of Australia Limited, Greenland Minerals and Energy Limited, Peninsula Energy Limited, PepinNini Minerals Limited, and Toro Energy Limited.

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

Equity market performance

In the past month, the uranium mining majors have had consistently negative share price performance, compounding declines of the past 3 months: Cameco (CCO) is down 13% (3 month performance -19%), Denison Mines (DML) is down 27% (3 month performance -37%), Uranium One (UUU) down 34% (3 month performance -42%), Energy Resources of Australia (ERA) down 16% (3 month performance -51%) and Paladin (PDN) down 25% (3 month performance -35%). ERA had the largest fall of the group, down 51% over 3 months and down 70% over 12 months. This reflects market and sector headwinds, in addition to a lengthy shutdown at Ranger 1H11 due to pit flooding, and delays to development projects.

The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) is down 19% over the past month, down 28% over 3 months and down 9% over the past 12 months. The sector has faced near term uranium price uncertainty since the crisis in Japan, as well as broader equity market concerns over slow US economic activity and ongoing sovereign debt issues in the advanced economies.

Uranium price outlook

The uranium spot price is US$54.25/lb. It plummeted mid March to US$49/lb on news of the partial meltdown at the Fukushima nuclear plant in Japan. Immediately prior to the earthquake and tsunami on 11 March, the spot price had been trading at US$67.75/lb, a 12 month high.

In the aftermath of Japan, we expect the spot market to trade in the range of US$50-$60/lb, and it is expected to remain under downward pressure in the coming months. The fund implied price (FIP), an indicator of market price expectations looking out 3 to 6 months, currently points to a spot price of US$48/lb, reflecting expectations of potential new supply to enter the market 2H11 from producers, funds and uncertainty over potential Japanese utility surplus dispositions.

The long term contract uranium price is relatively stable, and is currently US$68.00/lb (31 May), down from US$73.00/lb (28 Feb).

Despite the short term market impact of Japan, the long term uranium market fundamentals are considered sound with expected strong and increasing demand for new nuclear power reactors, especially from China, USA, Russia, Ukraine and India. While Germany has announced it will close all 17 of its nuclear power reactors by 2022 (with 7 to remain closed with effect from the March 2011 moratorium), many countries have publically stated their strong continued commitment to nuclear energy, most notably, and arguably of greatest influence, the US.

While the impact of the Japanese quake is expected to impact discretionary inventory purchases, and further delays to new reactor construction programs are anticipated, the impact on the contract price is expected to be temporary, with the price remaining around the US$60-75/lb mark. This level should support development decisions at a number of advanced uranium development projects, particularly in Namibia, e.g. the large scale Husab project of Extract Resources.

Emerging Trends: Rising REE prices are expected to support the economic potential of new REE projects and their associated co- or by-product uranium. Recently, Greenland Minerals and Energy announced (June 21) in a technical update of the Kvanefjeld REE-U-Zn project, Greenland, potential production of 40,000tpa TREO and 9.5mlbspa U3O8, for the first 15 years of the project. Potential commissioning 2015. The scale of uranium production compares with Yeelirrie 7.7mlbspa, Husab 15mlbspa and Cigar Lake 18mlbspa.

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.

Resource equity analysts: Sydney and Toronto.

The report is available at www.rcresearch.com.au. The next Uranium Sector Review will be published in the September Quarter, 2011. RCR also publishes the Gold Company Review; and periodically an Iron Ore 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:
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