Confusing Signals From U3O8 Market

Published on Aug 31, 2010

Opinions and views about the price prospects for uranium are as divided as those regarding immediate prospects for equities and government bonds across the globe; and that is probably putting it mildly.

In July spot uranium prices started rising again amidst widespread speculation Chinese buyers were re-entering the market and many commentators were predicting another wave up had started for the commodity. But as soon as these messages started attracting more and more attention, with share prices rising across the industry, another group of experts started to raise their voice, predicting it was far too early still to talk about a new bull market for uranium.

As things stand right now, spot uranium (U3O8) has risen from below US$42/lb to US$46.50/lb in a few weeks only, with increased spot deals being concluded, but the past two weeks have subsequently seen a sharp reversal. On Friday, industry consultant TradeTech lowered its weekly spot price indicator by US$2.25 to US$44/lb, effectively halving all gains made since the July rally.

Commentary by TradeTech suggests the damage was predominantly done by one seller who was prepared to go all the way to attract sufficient buyers' interest, but this seems to defy the fact that last week saw five deals being concluded, good for a total volume of 1.2m pounds of U3O8 equivalent; and the spot price still sank US$2.25.

Note that eminent producer of yellow cake, Cameco, announced earlier this month it had decided to restrain all sales for the rest of the year. Such a move should act as support for the spot price.

TradeTech's commentary also suggests there's plenty of buyers' interest, just not at all price levels (in other words: buyers remain on the hunt for bargains, but go silent when prices move higher).

TradeTech did keep its mid-term price indicator unchanged at US$50/lb and its long-term benchmark at US$60/lb.

Note that apart from one smaller quantity being sold at a price below the consultant's latest price update, TradeTech reports one large deal was done at the new price setting, while three deals carried a price label above the new weekly spot price. This might suggest further price declines are to remain rather limited.

Fellow-consultant Ux Consulting has thus far only lowered its own weekly spot price indicator to US$46.00/lb, but we haven't seen the latest market update just yet.

Rudi Filapek-Vandyck

Nuclear Boom Shines Light On Canada Uranium Miners

Investors in uranium miners stand to reap the rewards of a coming boom in nuclear power construction, but to win big they will have to be patient.

The nuclear renaissance is centered in Asia, where China plans to more than double nuclear power capacity by 2020.

* Analysts see mid- to long-term demand outweighing supply

* Uranium One viewed as undervalued, good short-term bet

* Cameco positioned to shine in 2013 and beyond

* Global nuclear power capacity could double by 2030 (In U.S. dollars unless noted)

At the same time, Russia says it will stop downblending weapons grade uranium from 2013, creating what some expect will be a 20 million pound hole in an already tightening world supply.

Analysts say this gives plenty of upside potential to Canadian companies like Uranium One and Cameco Corp, one of the world's largest producers of the nuclear fuel.

"We're forecasting very significant deficits, mostly starting around 2012-2013, growing by 2020 to more than a 100 million pound deficit," said RBC Capital Markets analyst Adam Schatzker. "That's huge."

"Our view is we're going to see a strong uptick in the uranium price towards the end of 2011, probably more into 2012. For a lot of (investors) that's just too long to wait."

Increased demand and higher uranium prices would be good news for Saskatchewan-based Cameco, which has already signed a deal to provide uranium for plants that China is building. It is expected to sign a similar deal with India, where nuclear power capacity is targeted to quadruple by 2020.

Cameco recently cut its sales outlook for 2010, as some customers deferred deliveries into 2011. But with its Cigar Lake mine set to begin initial production in 2013, the company looks poised to be back in the game at the right time.

BMO Capital Markets analyst Edward Sterck said an oversupply in the market means it will likely be 18 months to two years before the uranium stocks really start moving again.

He has a price target of C$27 for Cameco, just above Friday's closing price of C$25.97, and rates the company as "market perform".

First Asset fund manager John Stephenson, whose firm holds shares in both Cameco and Uranium One, is more bullish.

"If you wait until the plants are built and the uranium has been ordered and shipped and delivered, you've probably missed the run up in the prices," he said.

"If you buy now, when there's kind of blood in the streets, you're going to be well rewarded in 12 months time."

The spot price of uranium peaked at $136 a pound in June 2007, before the world economic crisis began, and is now at around $45 a pound. Sterck said that while the price will likely to be steady into 2011, it could quickly climb back to the $70 range if China starts stockpiling the fuel ahead of a likely shortage.

The 440 working reactors in the world today need nearly 69,000 tonnes of uranium annually, but the World Nuclear Association says that could double by 2030, if all the proposals for new reactors go through.

LOOKING TO KAZAKHSTAN

With so much interest focused squarely on the long term, analysts see Vancouver-based Uranium One as one company that may give investors short-term gains.

The company's stock rose as much as 23 percent on strong production numbers released earlier this month, although the share price has eased a little since then.

The company mines primarily in Kazakhstan, dubbed the "Saudi Arabia of uranium," thanks to its massive, high-quality reserves.

The low cost of mining in the former Soviet republic, coupled with the quality of the ore, has been key to Uranium One's recent success.

But it's been a bumpy ride for the mid-tier miner. With shareholders set to vote Tuesday on a deal that will see Uranium One sell a controlling stake in itself to a division of Russia's state-owned Rosatom, the stock is bound to keep moving.

"I think there is still some hesitancy from some investors with respect to the prospects of a Russian-controlled company," said Schatzker, who has a price target of C$5.25 and a "market outperform" rating for Uranium One.

The stock closed at C$3.44 on Friday.

Schatzker said the deal with the Russians should actually help Uranium One by providing a guaranteed market and likely making it easier to operate in sometimes-volatile Kazakhstan.

"The company, from a risk standpoint, is better off now with the Russians," he said, adding that Uranium One will likely outperform its production estimates in 2010.

He said the real boom will come in three to five years, when demand from power companies outweighs the supply.

"At a certain point we'll start to hear a lot of 'sorry we just have nothing to sell'," said Schatzker. "That will create a little bit of a panic."

Western Australian Government Appoints Experts To Oversee Emerging Uranium Sector

MINING controversial commodity uranium in WA will be held to the highest standard with independent experts set to scrutinise upcoming operations.

Mines and Petroleum Minister Norman Moore has appointed 10 independent experts to provide high-level legal advice on the implementation of a world’s best uranium sector regulatory framework.

The tender was awarded to the Australian Centre for Geomechanics, a joint venture of the University of WA, Curtin University and CSIRO.

The new group comes as several resources companies including BHP Billiton and Toro Energy are vying to develop the state’s first uranium mine, which could be as early as 2013.

Mr Moore said the group of experts would provide advice to the Department of Mines and Petroleum (DMP) on its regulatory framework for uranium mining.

“DMP is well placed to regulate radioactive materials after about 40 years of experience regulating mineral sands and tantalum without major incident,” Mr Moore said.

“The department has already looked at Western Australia’s relevant mining and safety legislation and has found these laws can adequately regulate increased uranium exploration and uranium mining in the State.

“However, the State Government knows the general public needs to have confidence in this as well.

“This independent expert advice will help the DMP ensure uranium mining in WA is undertaken in accordance with world’s best practice.

“DMP is setting a very high standard for uranium companies to follow and, by inviting independent, third-party scrutiny, it will help ensure the standards set are best practice.”

The experts will also provide the DMP with third-party ‘peer review’ and assessment of uranium mining proposals during the assessment stage of the development

Uranium Spot Price Keeps Edging Higher

UPDATE

Today's Spot Price Update Friday 13th August 2010

Nymex Uranium Futures As Of Today 13th August has Closed at US$46.90 P/Lb + another 40cent p/Lb

Next Week Is Looking Good !

Spot uranium prices rose again this week, to the highest level since November last year, to trade at $46,50/lb.

Haywood Securities analyst Geordie Mark said in a report published Friday that the fuel’s spot price would likely average at $65/lb next year, and climb to $85/lb in 2012.

Last week, market watchers at Denver-based TradeTech sounded a bullish note on the uranium spot price.

“New demand emerged with two non-US utilities entering the market. While supply remains sufficient to meet current demand, the recent increase in the spot uranium price led sellers to raise their offer prices with each new sales opportunity,” the company said.

“Buyers exhibited an increased willingness to pay higher prices to secure material as the week progressed and, as a result, the gap between willing buyers and willing sellers narrowed significantly.”

The uranium spot market is usually thinly traded, with more than 90% of the fuel being bought and sold on long term contracts, but the spot price is used to determine longer term prices.

Haywood predicted long-term contract prices would average $65/lb this year, and rise to $70/lb in 2011, before reaching parity with the spot price of $85/lb in 2012.

Vadim Zhivov, the director-general of Russia's State-owned uranium miner said last week medium term uranium spot prices would go beyond $55/lb.

“And I think that the long-term prices will be higher still than the spot prices going forward,” he said.

On Friday Canada’s biggest uranium miner, Cameco, lowered its uranium sales forecast for the year to 30-million pounds, compared with an earlier range of 31-million to 33-million pounds.

The company said it would sell less nuclear fuel on the spot market, which it described as highly discretionary. This means more good news for prices.

Vancouver-based Uranium One increased its production guidance for this year to seven-million pounds.

‘LINING UP’

On Friday, World Nuclear Association director-general John Rich said “dozens of nations, many of which had ignored or shunned nuclear power for decades, lining up to prepare and equip themselves to employ this remarkable technological asset”.

“Our world will need 8 000 GW of nuclear power in the 21st Century, and that this need can be met,” he told an audience in London.

In 2008, the world used 367 GW of nuclear power.

Spot uranium prices reached a high of$135/lb in 2007 before crumbling to levels below $40/lb.

Uranium Spot Price News Update August 10 2010

Weekly Spot Ux U3O8 Price as of
August 9, 2010

$46.50 P/Lb. [+0.50]

UPDATE

Today's Spot Price Update Friday 13th August 2010

Nymex Uranium Futures As Of Today 13th August has Closed at US$46.90 P/Lb + another 40cent p/Lb

Next Week Is Looking Good !


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