Uranium Week: Unchanged

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

The spot uranium market saw a very quiet week as buyers and sellers stood their ground, leaving prices unchanged.
 

By Greg Peel

Were Energy Resources of Australia’s ((ERA)) proposed Ranger 3 Deeps underground project at the company’s mine in the Northern Territory to go ahead from FY18, and assuming the current mine lease is extended beyond a current 2021, stockbroker UBS values the stock at A$2.34.

Were Ranger 3 Deeps not to go ahead the broker values ERA at A$0.10. The stock is currently trading around A$0.35, implying around a 10% chance is being priced in by the market.

Last year ERA decided not to progress the project to final feasibility study until such time as uranium prices recovered and the mining lease could be extended. This implies management retains a hope of one day going ahead but due to the project’s economic challenges, two-thirds majority ERA shareholder Rio Tinto ((RIO)) does not support any further development. Moreover, the local indigenous community, from whom approval is required, does not support a mine lease extension.

UBS does not believe Ranger 3 Deeps will proceed.

The broker does believe ERA will have enough cash to see the existing Ranger above-ground mine through to end of mine life, including required rehabilitation, assuming ERA continues to receive a premium on the broker’s forecast uranium price due to long dated contracts.

The broker does not believe the spot uranium price can be sustained at under US$30/lb for longer than a year. The standard measure of C1 cash costs reported by current producers appears to be low enough but does not take into account additional costs such as royalties, distribution costs and debt servicing costs. Rio Tinto and Canada’s Cameco between them produce 23% of current world supply and both companies reported all-in sustaining costs in the first half of 2016 in excess of US$30/lb, UBS notes.

Industry consultant TradeTech’s weekly spot price indicator is unchanged at US$27.75/lb following a very quiet week, in which buyers and sellers mostly held their ground. Only four transactions were completed in the spot market totalling 400,000/lbs U3O8 equivalent.

No transactions were recorded in the uranium term markets. TradeTech’s term price indicators are unchanged at US$27.40/lb (mid) and US$38.00/lb (long).  

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms