Shortages, acquisitions, new reactors – all spell a turnaround for uranium
With spot uranium at just $39.50/lb, we could certainly do with some optimism. And London-based Ocean Equities provides just that.
In a detailed assessment of the industry post-Fukushima, the team of analysts believes there are signs that the period of weakness in the uranium industry is coming to an end. “With significant secondary supply falling away over the next 18 months and suspended mining activities affecting the future pipeline of primary supply, the price of uranium could recover significantly from all-time lows,” the report said. (Well, “all-time lows” is not quite right: uranium in 2001 hit the bottom with spot being just $8/lb.)
Ocean Equities spotlights five trends.
One, as many as eight Japanese reactors are expected back on line by December. Japan has suffered from importing alternative energy sources at a time when the yen has weakened against the US dollar. Japanese utilities have posted net losses since the post-Fukushima nuclear shut down, with some needing government bail-outs to cover importing replacement fossil fuels.
Two, China and India will be responsible for new demand. China is at present constructing 17 reactors with another 51 planned. India is also aggressively investing in nuclear energy with seven new reactors coming on line by 2016.
Three, highly enriched uranium supply is set to fall away this year as the 20-year U.S.-Russian agreement ends. This saw Russian warheads converted into fuel suitable or reactors. This supply has equated to 13% of annual demand from the nuclear industry (about 23 million pounds).
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Four, suspended mine developments may mean some producers will have to buy the spot market to meet term contracts. In other words, with mine developments and expansions put on hold, some producers will find it more economic to buy on the spot market and stockpile for future deliveries. Ocean says this may explain why Cameco bought Nukem Energy, the German-based uranium market intermediary. This will give Cameco access to existing stockpiles and future supply that would otherwise feed into the spot market.
And, five, some large-scale open pit operations are located in politically unstable jurisdictions and have been subject to terrorist attacks. A recent attack on Areva’s Somair mine in Niger, where 23 employees were killed, resulted in a temporary shut down of operations.
While many suppliers have held back on expansion, and many explorers unable to, or unwilling to try, raising money for development, there has been one player that has pushed ahead: Kazakhstan. Ocean Equities points out that this Central Asian state has been responsible over the past decade for most of the global increase in uranium output.
Kazakhstan expects to boost output from 59 million pounds this year (up from 40 million last year) to 66 million by 2016. Their advantage is having several deposits suited to in-situ leaching; about 18% of uranium deposits around the world are so suited — and 80% of those just happened to be located in Kazakhstan
Ocean sees these are the most likely projects to come online:
1. Cigar Lake in Canada owned by Cameco, Areva and Tepco (Tokyo Electric Power). Delayed by three flooding incidents but expected in production by year’s end.
2. Ranger 3 in Australia. The open pit is depleted but Energy Resources of Australia is expected to produce as much as 7.2 million pounds this year from processing stockpiled ore while exploring the possibility of underground mining beneath the pit.
3. North Butte (Cameco). Just produced its first uranium.
4. Lost Creek in Wyoming. Ur-Energy is in the final stages of commissioning.
5. Nichols Ranch in Wyoming. Uranerz now in construction phase.
6. Husab in Namibia. China General Nuclear Power Group. Ramping up this year and full output by 2017.
More significantly (in view of general investor apathy regarding the uranium sector) is the number of acquisitions (or proposed acquisitions) since Fukushima. The Ocean Equities report lists:
2011: Hathor Exploration acquires Terra Ventures, Sichuan Hanlong Group bids for Australia’s Bannerman Resources (subsequently terminated), Energy Fuels buys Titan Uranium, Areva enters joint venture with KazAtomProm, and then Rio Tinto swallows Hathor, and Taurus – really part of China Guangdong Nuclear Power Group) – taking over Kalahari Minerals.
2012: Cameco acquired the Millennium project, Taurus got Extract Resources (and Husib), Energy Fuels bought the U.S. uranium assets of Denison Mines, Cameco got Nukem, Ur-Energy took over Pathfinder Mines. Cameco bought Yeelirrie in Western Australia from BHP Billiton and Denison swallowed JNR Resources.
2013 (so far) has seen ARMZ take control of Uranium One, Denison Mines acquire Fission Energy and Energy Fuels buy Strathmore Minerals.
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