Rumour Mill Hits Uranium

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED. For more info SHARE ANALYSIS: ERA

By Greg Peel

The last two weeks have seen carnage in spot commodity markets, yet uranium's trajectory has been to the upside. This is largely because uranium had already tanked in the wake of Fukushima and the speculators had already bailed, but also because despite small spot market transactions, uranium remains very much a term contract commodity.

When uranium dropped from above US$70/lb into the fifties after the tsunami, genuine utility buyers emerged to snap up product at bargain prices. It looked like spot uranium might bounce hard but news that the US Department of Energy had no plans to change its quarterly schedule of stockpile sales, being a total of 5.2mlbs through to 2013, given lower prices took some wind out of the sails.

In the meantime however there's been some positive news in terms of uranium price upside. China has largely reinforced its commitment to its long term nuclear energy expansion plans and more recently Japan has indicated that it won't be abandoning nuclear energy either, just reassessing safety issues and reactor locations (perhaps fault lines and coastlines are not the most sensible). And from a schadenfreude perspective, the shut down of Energy Resources of Australia's ((ERA)) significant Ranger mine for an as yet undetermined period has suggested a hole in global supply.

But an extra kicker came last week, industry consultant TradeTech reports, when the rumour mill started turning.

The reason the US DOE is selling part of its uranium stockpile is to fund the environmental clean-up at the Portsmouth enrichment facility in Piketon, Ohio. The DOE has contracted engineering team Fluor-B&W to undertake the project which is expected to last through to 2013. A total of 5.2mlbs of U3O8 equivalent is scheduled to be sold in quarterly instalments.

The rumour that flew around last week was that Fluor-B&W had actually found a buyer for the full amount, meaning a significant supply overhang would be removed from the market. Sellers immediately backed off their offers, TradeTech notes, but buyers were keen to pay up. By week's end, the spot uranium price had risen one dollar on eight transactions totalling almost 800,000lbs.

Alas, late on Friday Fluor-B&W denied the rumour. TradeTech has thus set its weekly spot price indicator at US$57.00/lb, a rise of US$0.75 from the previous week.

The consultant's mid-term contract price indicator remains at US$59/lb and long-term at US$68/lb.

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