Spot Uranium Grafting

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

By Greg Peel

There appears to be no pressure at present on potential sellers of spot uranium to aggressively meet buying interest, and what buying interest there is remains discretionary, industry consultant TradeTech notes. On that basis, four transactions last week totalling 800,000lbs of U3O8 equivalent had the effect of ticking TradeTech's spot price indicator up US15c to US$51.25/lb.

Activity in general remains sluggish, and while two transactions were reported last week in the term market they were both pretty small by term market standards. One utility sought 1mlbs of U3O8 for delivery over three years and another sought 1.2mlbs for delivery over four years. TradeTech's term price indicators remain at US$53.50/lb (mid) and US$60.00/lb (long).

BA-Merrill Lynch has provided a recap of Australian uranium production over the March quarter with respect to the listed pure-plays. The outstanding performer was Paladin Energy ((PDN)) which, despite little movement in uranium prices, saw its share price rally 34% over the quarter against a 6% rise in the ASX 200.

Energy Resources of Australia ((ERA)) managed a 5% price increase over the quarter but remains in the balance. The company has elected to spend $120m to explore the underground potential at its premier Ranger mine in the northern territory, known as the Ranger Deeps project. If ERA decides the Deeps is not a commercially viable proposition, Ranger is destined to quietly shut down. Merrills suggests known reserves are unlikely to last beyond this year and stockpiles would be gone in 3-4 years.

Meanwhile, Merrills has ceased coverage of Extract Resources ((EXT)) post takeover and its impending de-listing this week.

The broker has also taken the opportunity to review its uranium price forecasts to account for weaker Japanese demand now apparent one year after Fukushima. The analysts' 2012 spot price forecast falls to US$56.25/lb from US$58.50/lb and 2013 to US$67.50/lb from US$70.00/lb. Merrills' long term price drops to US$63.00/lb from US$65.00/lb.
 

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