Uranium Over-Excited?

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

By Greg Peel

RBC Dominion Securities notes that global uranium mining stocks rallied 13% on average last week, spurring investors into believing that a uranium bull market will shortly be upon us once more. RBC also believes there will be a rally in the future, but doesn't believe its time has yet come. If spot price gains don't now back up share price gains, warns RBC, those share price gains may quickly disappear.

Unfortunately last week did indeed see a fall in the uranium spot price according to industry consultant TradeTech's price indicator, although only of US25c to US$52.50/lb and largely due to a lack of interest. Only three transactions were recorded last week totalling 200,000lbs of U3O8 equivalent. Traders are finding it difficult to be enthusiastic uranium market participants at present, suggests TradeTech, due to variations in delivery times and delivery locations across the globe as well as form (U3O8, UF6 etc). 

There is nevertheless interest still bubbling in the market outside of the spot action. TradeTech reports three transactions in the term market last week totalling 600,000lbs with several other delivery contracts being sought. TradeTech's term price indicators remain at US$55/lb (medium) and US$61/lb (long).

RBC notes various global uranium miners provided encouraging production reports for last quarter, including locals Energy Resources of Australia ((ERA)) and Paladin Energy ((PDN)). On the demand side, RBC also sees positive developments ahead.

China is now planning to resume approvals of new nuclear power plants (on hold since Fukushima) and to be back on the track of increased uranium demand. The HEU (highly enriched uranium) agreement between the US and Russia, involving the dismantling of nuclear warheads and sale of the material for energy purposes, will come to an end in November 2013 and remove 24 million pounds of U3O8 supply per annum. And the low uranium price environment existing post Fukushima has served to delay new production outside of Kazakhstan.

RBC estimates the global uranium market will swing into “substantial” deficit from 2014. 
 

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