SOURCE: Resource Capital Research

Resource Capital Research

September 08, 2011 06:00 ET

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

Equity Research Report

DENVER, CO--(Marketwire - Sep 8, 2011) -

Key Points

Uranium Market:

  • The uranium spot price is US$48.85/lb (1 Sep). It is back to levels seen immediately after the March nuclear accident at Fukushima, Japan.
  • The dynamics driving the near term sector outlook remain dominated by the aftermath of Fukushima, including Germany's decision to close reactors.
  • The fund implied price (FIP), an indicator of market price expectations looking out 3 to 6 months, points to further downside, with a spot price expectation of US$45.95/lb (1 Sep).
  • 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.
  • Over 84 new nuclear power reactors are expected to be commissioned globally by 2017, with 63 currently under construction (or almost so).

Uranium Companies:

  • The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) is down 19% over the past month, down 27% over 3 months and down 23% over the past 12 months.
  • Sector performance has been hit by near term uranium price uncertainty since the March nuclear crisis in Japan, as well as broader systemic equity market concerns over slow US economic activity and ongoing sovereign debt issues in the advanced economies.

Analyst Comments:

"The sector has continued to come under selling pressure over the past few months, not only on concerns of utility (Japanese and German) surplus uranium dispositions, but broader equity market concerns as well, in particular the economic outlook for the USA and sovereign debt issues in Europe. We anticipate the extent of utility dispositions will become evident and fully priced into the market over the next 3 to 6 months, and result in buying opportunities as investors shift focus to longer term positive sector fundamentals," 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 their institutions, 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, Extract Resources Limited, Fission Energy Corporation, Kivalliq Energy Corporation, Laramide Resources Limited, and Paladin Energy Limited; and ASX listed companies: Alligator Energy Limited, Anatolia Energy Limited, Black Range Minerals Limited, Energy and Minerals Australia Limited, Energy Resources of Australia 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 (to 1 September), the uranium mining majors have had consistently negative share price performance, compounding declines of the past 3, 6 and 9 months: Cameco (CCO) is down 10% (3 month performance -17%), Denison Mines (DML) is down 23% (3 month performance -28%), Uranium One (UUU) down 23% (3 month performance -26%), Energy Resources of Australia (ERA) down 13% (3 month performance -15%) and Paladin (PDN) down 23% (3 month performance -35%).

The Australian majors have significantly underperformed their Canadian peers over the past 12 months, primarily due to operational problems, viz., Ranger (ERA) and ramp-up delays and higher cost outlook, particularly at Kayelekera (PDN).

The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) is down 19% over the past month, down 27% over 3 months and down 23% over the past 12 months. The sector has faced near term uranium price uncertainty since the March nuclear crisis in Japan, as well as broader systemic equity market concerns over slow US economic activity and ongoing sovereign debt issues in the advanced economies.

The sector outlook is expected to improve and buying opportunities emerge late 4Q11-1Q12 as the anticipated surplus utility disposals materialise and are priced into the market, and investors refocus on mid to long term sector fundamentals.

Uranium price outlook

The uranium spot price is US$48.85/lb. It is now back to levels seen immediately after the March nuclear accident at Fukushima, Japan when the spot uranium price plummeted to US$49/lb. 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.

The long term contract uranium price is relatively stable, and is currently US$64.50/lb (31 August), down from US$68.00/lb (31 May) and US$73.00/lb (28 Feb).

Despite the ongoing short term market impacts from Fukushima, 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.

Over 84 new nuclear power reactors are expected to be commissioned globally by 2017, with 63 currently under construction (or almost so). There are 496 new reactors planned or proposed as at 1 September (WNA).

The impact of Fukushima 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, eg the large scale Husab project of Extract Resources.

USA uranium projects:

Uranium projects in the USA continue to advance through the permitting process with significant new developments approved in Wyoming, Colorado and Texas over the past 12 months:

  • Wyoming: Uranium One received its NRC operating license (Oct '10) for Moore Ranch; and 2 other companies received final NRC permits this quarter, viz., Uranerz (July '11) and Ur-Energy (Aug '11). URZ has commenced construction of its Nichols Ranch ISR project and expects first production 2H12. Peninsula Energy is in the final stages of permitting the Lance ISR project. Production visibility 4Q12.
  • Colorado: Energy Fuels received the Final Radioactive Materials License for its Piñon Ridge mill (Mar '11) located near the UT/CO border, making it the first new permitted uranium mill in the USA in 30 years.
  • Texas: Uranium Energy Corp received Draft Radio Active Materials License (Aug '11) for its Goliad ISR satellite project, which will feed the Hobson ISR processing facility.

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 December Quarter, 2011. RCR also publishes the Gold Company Review, Iron Ore Company Review and periodically, 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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