Commodities | Jun 28 2007
By Rudi Filapek-Vandyck
Uranium specialists at Canada’s National Bank Financial are of the view that things have gone a bit too fast this year (where did we read this before?). In an update on the sector the analysts stated: “We remain concerned that the market is a little out of control but we are not sure what mechanism will slow it down.”
National Bank Financial suggests a temporary buyers strike may well be the trigger that pulls things back into normalcy, predicting that “at some point the natural buyers will hold off from entering the market unless desperate and will play the long term market instead where the term price is only [US]$95.00 per pound.”
The long term price indicator hasn’t moved a lot so far, certainly not in comparison with the weekly spot price, and the analysts believe this is because sellers are expecting prices to come down while buyers continue to hold out in anticipation of potentially higher prices still.
Putting the de-rating of uranium stocks over the past few months in perspective, National Bank Financial has calculated that investors are currently valuing lbs of uranium in the ground for junior explorers at C$8.13. In mid April of this year, the figure was C$11.74. The difference is a not so cool 31%.
The good news is, however, that the analysts have decided to increase their spot price averages. The expectation is now that U3O8 (uranium concentrate or yellowcake) will average US$120/lb this year, followed by US$150/lb next year and US$135/lb in 2009.
The oft mentioned supply response is expected to kick in from 2010 onwards which explains the current spot price forecast of US$115/lb for that year.
The analysts have stuck to their long term price forecast of US$35/lb, though the number is not mentioned in their current table of price forecasts which runs until 2014.
National Bank Financial covers Australia’s fledgling producer Paladin Resources (PDN). Incorporating the new price forecasts in their model, and taking into account the dilution following the part acquisition of Summit Resources (SMM) plus some changes to production forecasts leads the analysts to cut their price target by 20.5% to C$8.75. The stock is rated Sector Perform.
