Nuclear Summit Changes Uranium Outlook

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

By Rudi Filapek-Vandyck

US President Obama's success in convincing world leaders the best way forward is through the conversion of hundreds of thousands of tons of weapons-usable nuclear fuel into non-military fuel for power stations might be good news for world peace, but probably not so for investors in uranium companies.

This week's nuclear summit in Washington has ended with a general pledge by participants from all over the globe to convert hundreds of thousands of tons of weapons-usable nuclear fuel by 2014, plus an intention to set a 2012 summit in South Korea to measure progress.

This inevitably means the supply-outlook has dramatically changed for the sector this week.

No wonder thus industry consultant TradeTech reports the weekly spot price has fallen by a further US50c to US$41/lb during the week ending last Friday. Fellow-industry consultant Ux Consulting also cut its weekly spot price, but only by US25c to US$41.75/lb for the week ending on Monday.

It is not uncommon for the two price benchmarks to temporarily differ.

Shares in uranium related companies across the world have outperformed broader share markets in recent weeks, but we cannot help but wonder whether this will prove sustainable in the light of the latest developments?

Yesterday, Energy Resources of Australia ((ERA)) delivered a much worse than expected production update leading to investors abandoning the shares in droves. Stockbrokers have responded by cutting earnings estimates and some have pulled back their rating as well.

We note that RBS Australia is now the only one left with a Buy rating on the stock. Overall market sentiment as measured by the FNArena Sentiment Indicator is negative.

The shares are trading on a Price-Earnings ratio of 21 for this year, according to consensus estimates (likely to fall further though). For more information: see Stock Analysis and R-Factor on the FNArena website.

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