Uranium Expected To Remain Capped At US$45/lb

This story features DEEP YELLOW LIMITED, and other companies. For more info SHARE ANALYSIS: DYL

By Chris Shaw

The first quarter of 2010 has been disappointing for the uranium price, as Resource Capital Research notes the spot price has fallen from US$45.00 per pound three months ago to US$41.25 per pound now. In between, spot uranium touched a yearly low of US$40.50/lb.

On a slightly more positive note, Resource Capital points out the Fund Implied Price (FIP), which is a reasonably good leading indicator of the near-term spot price, is at US$42.50 per pound, having risen from US$41.40 per pound at the end of December 2008. The FIP has traded in a range of US$40.00-US$49.00 per pound since August of last year.

Over the next three to six months Resource Capital expects uranium will remain in the US$40.00-$45.00 per pound range in the absence of any external shocks. While there appear to be no obvious catalysts to push the price significantly higher through 2010, the timing of Chinese buying remains a factor that could influence prices according to Resource Capital managing director John Wilson.

While the FIP has risen since December 2008 the long-term contract uranium price has fallen over the same time from US$70.00 per pound to US$60.00 per pound. Resource Capital points out long-term prices have been more stable than spot prices as the spot market is more thinly traded.

Uranium prices may have weakened in recent months, but Australian companies with uranium projects have in general posted gains, with the market value of those with at least one uranium project rising 6% in the past month.

On a three month view the market value of these companies has risen by an even better 8%, while over the past year the increase has been 173%. This means Australian uranium plays have outperformed their Canadian counterparts over the past year, which are up 6% over the last month, 16% over the past three months and 136% over the past year.

March quarter points of interest for Australian listed uranium plays include African Energy Resources ((AFR)) continuing to drill their projects in Zambia and Botswana and Black Range Minerals ((BLR)) continuing to attempt to acquire 100% of of the Hansen uranium deposit. This project adjoins its existing Taylor Ranch deposit.

Resource Capital suggests Deep Yellow ((DYL)) may be close to moving from explorer to producer thanks to high grades at the Omalaha project in Namibia, while Energy and Minerals ((EMA)) appears likely to deliver a resource expansion at Mulga Rock given recent drilling success.

Extract Resources ((EXT)) has seen some share price weakness of late, but Resource Capital suggests this is not justified given the value of its resource, while RCR notes Greenland Minerals and Energy ((GGG)) continues to develop its Kvanefjeld project with mining negotiations currently underway.

Marenica Energy ((MEY)) continues to develop the Marenica deposit in Namibia and this appears to hold some value as Resource Capital notes Areva has taken a stake in the company. Monaro Mining ((MRO)) has drilling at two projects planned in the June quarter, while Peninsula Minerals ((PEN)) continues to advance its Lance project in Wyoming in the USA.

Toro Energy ((TOE)) continues to work on transforming Wiluna in Western Australia into a regional uranium hub while also exploring elsewhere, while Uranex ((UNX)) continues to explore a number of projects in Africa.

Resource Capital also notes White Canyon Uranium ((WCU)) could be producing at Daneros in the US at a rate of 55,000 tonnes annually this month, while further drilling is targeting an increase in its resource base.

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