January 16, 2010

Australian Uranium Sector Update

The spot uranium price is now US$44.50 per pound, which is down 5% from 3-month ago levels and compares to a spot price of US$52.50 per pound as at the end of last year. Prices rallied in October as an incident at the Olympic Dam mine saw a jump in the spot price to US$49.50 per pound, but this level has failed to hold.

Given the incident is likely to take about two million pounds of uranium out of the market by the first quarter of 2010 thanks to lost production at the project, industry consultant Resource Capital Research (RCR) suggests the current price weakness is a little concerning for uranium prices going forward.

Little change is expected in the near-term as RCR notes the Fund Implied Price, which is a good leading indicator for near-term spot prices, is currently trading at US$45 per pound having ranged between US$42-US$49 per pound since August. Most likely to influence prices in coming weeks according to RCR are expectations of increased uranium purchases by utilities on the buy-side, countered by ongoing concerns with respect to increased US Department of Energy liquidations on the supply-side. Currently RCR notes there are modest concerns in the market with respect to downside price pressures.

Long-term contract prices for uranium currently stand at US$61 per pound, down from US$70 per pound in December last year, while RCR notes there are 436 nuclear power reactors in operation and 53 under construction. Globally a further 436 reactors have either been planned or proposed, up from 376 in December of last year. This should boost long-term demand and so provide some support to prices in the years ahead.

Despite the spot uranium price issues, RCR notes the market valuation of Australian companies with one or more uranium project has risen 12% over the past month, 18% over the past three months and more than 350% over the past 12 months. This means the Australian uranium sector has outperformed its Canadian counterpart, where the gains have been 4%, 19% and 198% respectively.

Among the listed Australian plays making news this quarter, RCR notes African Energy Resources (AFR) has seen significant share price gains thanks to exploration success in Africa and the awarding of a mining license in Zambia, while Black Range Minerals ((BLR)) continues to make progress in acquiring the balance of the Hansen uranium deposit it doesn't already own.

Elektra Mines ((EKM)) continues to explore the Yamarna belt region in Western Australia and has returned some high grade discoveries of late, leading RCR to suggest a resource of one million ounces is possible by the middle of next year, while Energy and Minerals Australia ((EMA)) has also been active in drilling its Mulga Rock Deposits project. As well, the company is expected to announce a resource upgrade at its Ambassador deposit in the first quarter of next year.

Energy Resources of Australia ((ERA)) offers some valuation upside according to RCR if current exploration of its East Alligator River assets in the Northern Territory deliver good results, while Extract Resources ((EXT)) continues to lift its resources towards 600 million pounds. This means the key for the company will be how any project is structured for development in RCR's view.

Greenland Minerals and Energy ((GGG)) is due to provide a pre-feasibility study on the Kvanefjeld deposit sometime this month according to RCR, while Mid Exploration ((MEY)) continues to aggressively explore the Marenica deposit in Namibia, where there is potential for a heap leach operation.

For Monaro Mining ((MRO)) the focus according to RCR will be on advanced exploration drilling at its US projects in the first quarter of next year, while NGM Resources ((NGM)) has already returned some encouraging early results from its large strategic land holding in Niger, Africa.

While long-term Paladin ((PDN)) expects to grow its African operations even further, the current focus for the company according to RCR is the ramp-up of production at both Langer Heinrich and Kayelekera, where delays have already caused production guidance for 2010 to be lowered to 5.6 million pounds from 6.6 million pounds previously.

For PepinNini Minerals ((PNN)) exploration remains the focus as RCR points out along with the impending release of the Crocker Well Project bankable feasibility study the company also has some high grade gold, copper-nickel and other base metal targets that should keep the stock in the news in the first half of next year.

Toro Energy ((TOE)) has made ground in expanding its Wiluna resource base via the acquisition of some additional ground and RCR notes the company is cashed up to produce a bankable feasibility study on the project, while White Canyon Uranium ((WCU)) has almost reached the ore body at its Daneros project and so RCR expects first shipments of ore either this month or early in 2010.

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