EDITOR: | June 2nd, 2014 | 13 Comments

We are heading for a uranium crisis

| June 02, 2014 | 13 Comments
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Well, I think my question of a month ago might have been answered. At the beginning of May I queried whether it might be the time to take one’s courage in one’s hands and plunge into uranium. I began with what seemed reasonable to guess might be the bottom: “The uranium company index is down 77% since Fukushima. Spot uranium dropped another $1.75/lb this week to $30.75? If it goes below that $30, as well it might, what might become a “perma-gloom” will settle over yellowcake as an investment,” I wrote.

Welcome to the “perma-gloom” with spot uranium now at $28.25/lb. But it really does portend a very troubling situation. We could be on the brink of a real uranium crisis, one that could have serious ramifications down the road. This is because, on top of all the doubts about nuclear post-Fukushima and the slowness of Japan to get reactors back on line, uranium is caught up in the general malaise affecting the mining industry. As revealed in a precious metals forum in London last week, earlier this year China and India were consuming more gold than all the world’s mines could produce, yet the gold price continues to tank. The West urgently needs to establish a non-China flow of rare earth supplies, yet investors are simply not interested in REE companies; we are seeing, for example, Hastings Rare Metals (ASX:HAS) — which has a West Australian deposit heavy in dysprosium and yttrium, along with niobium, hafnium and other elements — offer new shares at just A3.8c each.

We have 70 reactors in various stages of construction around the world. But the uranium price has fallen by 30% over the past year. If it keeps falling, and it well might, more and more companies will either go into hibernation mode or quit the sector all together. What then? We need exploration going on now to provide the uranium needed after 2025 and beyond.

Also, what then for nuclear power, the one proven clean-air fuel that can deliver base load power?

A surer sign that all is not well can be evidenced from an ominous trend — exploration companies quitting the sector. Others are making cuts: Cameco closed its Cheyenne office, while BHP Billiton has deferred its expansion at the world’s biggest uranium deposit, Olympic Dam in South Australia. Australia’s Paladin Energy (ASX:PDN) has put one of its mines, Kayelekera in Malawi, on care and maintenance.

Back in 2007-8, after spot uranium hit $137/lb, this was the place to be. Suddenly every mining explorer was keen to be in the uranium hunt. At one stage, more than 260 companies listed on the Australian Securities claimed to have uranium projects (many of them in what the Canadian miners call “moose pasture”).

Now, it seems, those small number remaining can’t wait to get out. FYI Resources (ASX:FYI), which got into uranium after quitting the eye care business (it’s previous name was Freedom Eye) in 2009, is now concentrating on potash in Thailand. Uranex (ASX:UNX)  is staying in Tanzania, but has put its uranium on the back-burner in order to pursue graphite.

United-UraniumBut possibly the most startling change was reported today. Junior United Uranium (ASX:UUL) which has six projects in Western Australia [and A$3.41 million in the bank as at March 31] is getting out of uranium and into — wait for it — property development. You can’t exactly blame the directors. The shares are trading at a discount to the company assets (the market capitalisation being just A$2 million), all its projects are early-stage ones that will require considerable sums to explore and may not turn out to be viable, no one is investing in the sector, the uranium price is depressed as is the resource sector generally.

Just two weeks ago another uranium explorer working in Western Australia, Prime Minerals (ASX:PIM), signalled it was changing direction. It is merging with Cocoon Data Holdings which has data security software. The news lifted Prime’s stock from A0.9c to A2.2c.

Back in 2007, announcing you were getting into uranium could see your stock price double. Now announcing you’re switching focus away from uranium does the trick. This is not a good trend.


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Comments

  • Tracy Weslosky

    Thank you Robin. This news is disheartening for those of us that like nuclear energy. We need to support our junior exploration plays as it is a fact that we have a uranium shortage looming. I used the graphic of a “bright idea” pulled from the Junior United Uranium site as I too am incredulous that they have moved into property management. Incredulous — . Good piece.

    June 2, 2014 - 10:18 AM

  • Bill Keenes

    Thanks Robin, it’s a sector I was previously invested in, and have no desire to re-invest in.

    There are plenty of stories out there providing good reason why the uranium spot price will remain under pressure ….. form “nuclear weapons being dismantled under disarmament”, “Nuclear Waste Can Power the World for 72 Years” and “China is upping the ante dramatically on thorium nuclear energy”.

    Just because the uranium sector is cheap and beaten down is not a compelling enough reason “for me” to be invested.

    June 2, 2014 - 4:55 PM

    • Robin Bromby

      Yes, Bill, my piece was written more in sadness than anything else. It seems that the opponents of nuclear power have the upper hand, and I see that resistance is also growing in China.
      You mention thorium: that is the great tragedy, as this fuel has such great promise but who is going to chance their arm (outside China) in this current environment?

      June 2, 2014 - 5:01 PM

      • Stephan B. Feibish

        India has a good supply of thorium and it would stand to reason they would pursue thorium based reactors. Keeping uranium powered reactors to produce the bombs needed to ward off Pakistan and protect their Nepal water sources (Himilayas).

        Maybe they’ll even use the plants for expensive de-salinization.

        A good portion of my money was tied up in uranium miners (they’ve gone done so much I can’t say that anymore 🙂 My fear is that thorium powered reactors are developed before uranium really takes off longterm.

        I’m not familiar with the term “chance their arm”.

        June 8, 2014 - 1:28 PM

  • Meahgan

    Ha funny you say that Bill because no one is saying you should buy it just because it’s beaten down. You should buy it because:

    A) the us, for exampme has an annual requirement on 45m lbs of uranium, yet less than 10% of that demand coveted from us sources

    B) whilst Russia and kasakhstan hold the energy security of nuclear in their hands…trust that the western world isn’t going to suffer on expensive renewables (as much as you think they are)

    C) germanys ‘energiewende’ is classified universally now as a failure – other world leaders taking note.

    D) china is planning more reactors than us by 2030…with an urgent need to curb emissions.

    E) Japan’s cost of (gas) energy has now gone through the roof since its reactors turned off, now the government couldn’t be anymore motivated to start the reactors than as they ate this Japanese summer. And if the font turn them on in summer…just watch the pressure mount.

    F) the spot price has tanked so badly that it is unprofitable to produce, as such taking projects offline the world over, hence tightening supply.

    This current bearishness is only bearishness based on sentiment…not fundamentals. A good investor (eventually) always return to fundamentals. Bad/common investors wait until the smart money is already in.

    June 3, 2014 - 6:50 PM

    • Bill Keenes

      Meahgan, all good points, and the world needs the electricity, no denying that.

      From an investment point of view though, the fuel from decommissioned warheads continues to flood the market, and not until I see that it has stopped will I even consider reinvesting in this sector, because until then I believe the spot price of uranium will remain under pressure.

      Best of luck if you are invested.

      June 10, 2014 - 7:10 AM

  • Hiwayman

    Meaghan,

    Twelve out of ten 🙂
    This is exactly the time to buy quality Uranium shares,while investor
    sentiment continues its decline.

    In the early part of the last decade Uranium companies were selling
    for cents in the dollar,just as they are today. And ‘U’ was selling for
    just a few dollars per pound and the most hated commodity on the
    planet.

    Today, a similar set of circumstances exist, as the Uranium worm
    turns once again.

    I can remember several brokers in 2003, advising, that one would have
    to be ‘certified’ to invest in Uranium.

    One classic example of adhering to fundamentals Meahgan,was a CEO
    by the name of Allan Eggers of Summit fame who at the time bought up
    ‘worthless’ Uranuim ground in the Mt Isa region of Australia for peanuts.

    Shares at the time were selling for 10 cents.The rest is history.

    Remembering of course that no bell rings at the bottom of the market
    and no bell rings at the top.However, smart money is already entrenched
    in the quality end of the ‘U’ juniors 🙂

    Go well.

    June 5, 2014 - 9:50 AM

    • Woody Crockett

      EXACTLY. This is definitely the time toget back in.

      June 23, 2014 - 12:37 PM

  • Mike

    Any new Uranium project (or mothballed project ) will take anywhere between 3 and 10 years to get into production. Considering the Supply has been ~34% lower than supply over the last 10 years the stockpiles have shrunk significantly (around 300,000 tonnes) It is clear this market has long cycles and if you are a young investor with patience to wait 5 to 10 years to make huge returns, then Uranium is the place to be. The Chinese have suddenly started showing an interest in Uranium resources and they are certainly building more reactors and any new technologies like thorium etc will take more than 10 years to affect the market. The clock is ticking, the supply dwindling and the demand is starting to grow, tick tock tick tock….

    June 9, 2014 - 5:50 AM

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  • Woody Crockett

    I think the crisis sentiment is a bit overblown. Does anyone think that the C-level management of dedicated mining companies don’t see the hadwriting on the wall? It’s just a matter of time when the reactors currently under construction will come on line AND Japan will be bringing several of their reactors back on line.

    At this juncture, I wouldn’t be in the least bit surprised if the CapEx in the mining companies are increasing to expand their capacity to take up the slack left by companies that are jumping ship to find something else to do.

    My prediction is there will be fewer companies producing but the one who are will see their reveunes jump with respect to their increased output. I also see Uranium prices climbing past the $50-55.00 level by year’s end. And should the econmy come back to life, we can see prices go even higher–WAY HIGHER.

    June 23, 2014 - 12:28 PM

  • dreamer321

    the Japanese had 52 reactors run, they built up huge invertory for their 52 reactors. the majority of the invertory will be dumped into the market. PLUS they will only restart 1/3 of their reactors.
    there are plenty Uranium left.
    The Chinese will have their own way to build up the invertory by direct invest into U mines in Asia / africa.
    Junior U companies from the west are high cost mines, they cannot compete with the world.

    August 15, 2014 - 5:26 PM

  • philip amberg

    Accordian to the news, the deal we made with Iran will increase the oil supplies worldwide.This could mean lower gas prices here.This is important to all americans.It far outweighs all your minuses.It’s a very good deal

    July 23, 2015 - 7:46 PM

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