Uranium Week: Supply Reduction Lifts Price

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

By Greg Peel

Energy Resources of Australia ((ERA)) has announced its proposed Ranger 3 Deeps underground project in the Northern Territory will not proceed to the final feasibility study stage at the present time, given weakness in the current uranium operating environment. Uranium prices have not rebounded as ERA management was expecting.

A further impetus not to proceed is the 2021 expiry date of the company’s Ranger Authority, permitting the company to mine the area. The economics of Ranger 3 require operations to proceed beyond this date, and an extension of the Authority would need to be negotiated with both the federal government and traditional landowners. ERA will continue to service existing sales contracts through the processing of Ranger stockpiles.

For stockbrokers, investment in ERA had become a largely binary proposition based on whether Ranger 3 would go ahead or not. The three FNArena database brokers left covering the stock now all rate ERA a Sell or equivalent, with their consensus target price having fallen to 72c from a prior $1.17. JP Morgan, in particular, has lowered its target to 30c.

Two-thirds shareholder of ERA, Rio Tinto ((RIO)), has approved the project deferral. Rio has flagged a write-down of the carrying value of its ERA stake by around US$300m.

The Ranger 3 Deeps mineralisation zone is estimated by ERA to contain some 77mlbs of U3O8. The project may be revisited in the future under different market circumstances, but for now the deferral represents 77mlbs of future supply that will not be hitting the market.

This news proved encouraging for uranium sellers last week, industry consultant TradeTech notes, hence offer prices were raised. At the same time, two utilities were in the market looking to secure near term delivery contracts for 100,000lbs and 260,000lbs of U3O8 respectively. There were ultimately six transactions concluded in the spot market last week, TradeTech reports, totalling 850,000lbs of U3O8 equivalent. Buyers were prepared to pay up as the week progressed.

TradeTech’s weekly spot price indicator has risen US$1.25 to US$36.75/lb.

Two transactions were reported in the term markets last week, but neither involved end-users on the buy-side. Trade Tech’s term price indicators remain unchanged at US$39.00/lb (mid) and US$46.00/lb (long).
 

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