February 24, 2011

Uranium Spot Price Settles At US$68.75 P/Lb But Seen As A Short Term Market Pullback

Published on Thursday February 24 2011

Very likely we shall see this recent decline within the Uranium Spot Market as a temporary pullback. On analyzing the Chart below one can clearly see a price convergence almost touching the Bottom Bolinger, in addition to the rapid decline of the RSI to 41
*RSI Above 70 Overbought/Below 30 Oversold
Therefore I would strongly suggest a bounce from this level.

This Weeks Market Wrap

After a stellar start to the year, the uranium spot market took a major step backward last week. Ux Consulting said that the price fell US$3.50 a pound to US$68.75, while rival TradeTech said it was down US$4.25 a pound to US$68.50.

Either way, it is the worst one-week price drop since the financial crisis in 2008. But according to TD Newcrest analyst Greg Barnes, it is not a huge concern.

TradeTech said there was a “non-traditional” seller in the market offering 800,000 pounds of material. Mr. Barnes wrote that he understands the seller is Chinese. The Chinese want uranium to be processed in China itself, and the material that was sold was effectively “stranded” at a Western converter, Mr. Barnes said.

“Rather than have the uranium concentrate converted in the West, the Chinese sold it in favour of material that could be imported into China as uranium concentrate and processed domestically,” he wrote.
He does not think that the Chinese have suddenly taken a bearish view of the market. Rather, he believes the sale was more of “an adjustment of inventory positions.”
“It appears that once the Chinese material cleared the market, buying interest returned at the new, lower level,” he wrote.
The uranium spot market has been very busy this year. 

Ux Consulting reported that the beginning of 2011 has been the strongest start to a year since 2005. There have been 53 transactions covering nine million pounds of uranium.

February 23, 2011

Uranium Supply Shortage Good For Cameco

Published on Wednesday February 23 2011

Cameco, one of the world’s largest uranium producers, sees opportunity in the 250 million pounds of new uranium production the company believes is required to meet demand over the next 10 years. And there isn’t a lot of competition given the high barriers to entry in the business — including 10-year lead times to obtain permits and dig new mines. To help meet heightened demand, Cameco plans to grow its production by roughly 10% a year through 2018. They currently supply 16% of global uranium production.

Over one hundred new nuclear reactors are expected to come on line over the next decade worldwide, half of them in China alone, with India and Russia having aggressive build-out plans as well. According to the publication China Daily, the former director of China’s National Energy Administration says that China may expand its 10-year nuclear plant ambitions even more from 80 gigawatts currently planned to 86 gigawatts. The World Nuclear Association says China’s demand for uranium is expected to reach 44 million pounds annually by 2020, but domestic supply will only reach 5 million pounds by that time.

From all this new demand, industry consultants expect the global uranium market to grow from about 190 millions pounds currently to 247 million pounds by 2020. Secondary uranium sources, like governments’ conversion of explosives-grade uranium to electricity-grade uranium, are expected to decline from about 48 million pounds today to 24 million pounds by 2020. In combination, the growing demand with declining secondary sources suggests 5-6%% annual demand growth for uranium from mined sources over the next decade.

It is well known that existing supply from uranium mines cannot meet the anticipated demand; Cameco estimates that 18% of total supply over the next ten years will come from new sources. 

Afraid of the upcoming supply shortage, China has been aggressively pursuing long-term contracts for uranium. Industry participants believe it is largely China that is responsible for driving spot uranium prices from $40.75 in May 2010 to $72.25 today. Even so, the cost of uranium fuel at today’s prices, which includes the cost of processing it into fuel rods, only represents about 20-25% of the total cost of generating electricity at the more efficient nuclear plants currently planned and under construction, compared to 40-50% for existing plants. Given the efficiency of the new technology, it follows that Chinese planners are likely unfazed by the recent price increases and uranium prices could more than double from current levels before giving the Chinese pause, especially given their history of aggressive behavior in other nation-critical mineral areas like rare earth metals.

With their 80 to 86 gigawatts production targets, the Chinese will pull out all stops to lock in their long-term supply of uranium. Inevitably, India and Russia will be forced to enter the bidding war to get their share of supply as well. 

In 2007, uranium prices spiked to $136 per pound, reportedly helped along by speculators. With the current supply shortage, another price spike over $100 may be in the cards for 2011 and prices may stay elevated for some time.

Cameco (headquartered in Canada) is levered to the spot price of uranium since its mining costs, averaging US$22.5 per pound in 2010, are relatively fixed. Given the China factor, I believe uranium spot prices could average US$100 per pound in 2011 and US$130 in 2012. Should this be the case, existing analyst earnings estimates are too low at $1.56 per share in 2011 and $1.99 in 2012. Building in the higher uranium prices into my earnings model, I calculate Cameco could earn US$2.35 in 2011 and US$4.93 in 2012.

Multiplying my $4.93 2012 earnings estimate by the 18 P/E of the S&P Materials Sector gives Cameco a projected price target of 88, over a double from the 41 level it trades at today. On current consensus earnings estimates, the forward price to earnings for Cameco is 26, so applying an 18 multiple seems relatively conservative. In its latest quarterly report released Friday February 11, Cameco reported earnings of $0.48 per share, $0.20 better than analyst estimates of $0.28. Two analysts rate Cameco as a hold, and one a buy, so there is room for analyst upgrades to help the stock higher.

Cameco management is optimistic about its prospects, recently raising its dividend 43% from 28 cents per share annually to 40 cents. Management’s recent quarterly conference call was up beat.

February 19, 2011

February 16, 2011

Australian Resources Minister Now Say's It's Time To Sell India Uranium

Published on Wednesday February 16 2011

THE Australian Labor Party needs to modernize its policy and allow uranium to be exported to India, federal Resources Minister Martin Ferguson says.

In frank public comments setting up a landmark debate at the party's national conference due later this year, Mr Ferguson said Labor's current uranium sales policy needed to allow ''flexibility and discretion'' when it came to India.

Mr Ferguson told The Age yesterday he was not proposing Labor dump its blanket ban on uranium exports to countries outside the nuclear non-proliferation treaty, but he urged the party to recognise India's ''very, very good history of nuclear non-proliferation''.
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''No one can suggest India is a rogue state,'' Mr Ferguson said. ''I think this is something the Labor Party has to think about: there should be some flexibility or discretion built into the national policy that enables Australia to handle the delicate situation of India while at the same time forcing full accountability in the use of uranium in civilian power plants.

''I accept [that our refusal to export uranium] is a major concern in an otherwise close strategic relationship between Australia and India.''

Any future uranium sales to India would be accompanied by a bilateral safeguards agreement such as the one Australia negotiated with China in 2007, and Australia would want inspections on the ground.

Mr Ferguson's comments come after The Age last week published a secret diplomatic cable, supplied by WikiLeaks, revealing he had told US embassy officials that despite the current ban, a nuclear fuel deal with India could be sealed in the next three to five years.

His decision to publicly endorse a policy shift comes on the eve of an expected move today by the influential right-wing Australian Workers' Union to pass a resolution supporting an expansion of uranium mining and endorsing a debate about nuclear power.

AWU national secretary Paul Howes has publicly supported nuclear energy. Former New South Wales Labor premier Bob Carr also believes the party needs to debate the issue.

Mr Ferguson's emphatic support for uranium sales to India is deeply contentious in some quarters of the ALP, but his position is also supported in principle by senior members of the Gillard ministry on both sides of the factional divide.

Mr Ferguson endorsed the AWU position yesterday but was cool on the idea of a domestic debate this year about nuclear energy, saying the issue was ''not top of the mind at the moment''.

The US has a safeguards agreement allowing uranium and nuclear technology to be exported to the subcontinent provided India allows some of its power plants to be opened to international inspectors.

The Howard government proposed a change to Australia's foreign policy that would have allowed yellowcake sales to India under a safeguards agreement similar to the American deal. The US strongly supported such a move by Australia both for foreign policy and energy security reasons.

But the Rudd government stopped the process after the election in 2007, despite several senior ministers being privately supportive of uranium sales to India.

Mr Ferguson is not seeking to overturn Labor's current policy to allow the export of uranium only to those countries which observe the nuclear non-proliferation treaty (NPT), are committed to non-proliferation policies, have ratified international and bilateral nuclear safeguards agreements and maintain strict safeguards and security controls over their nuclear power industries. Rather, he is seeking the capacity to assess the issue case by case.

His decision to advocate publicly for change will enrage the Greens, who strongly oppose an expansion of the uranium and nuclear industries.

But the opposition has advocated uranium sales to India - making this one of the few current policy issues on which the government could expect bipartisan support.


February 9, 2011

Uranium Spot Price Stabilizes At US$73.00 P/Lb

Published on Wednesday February 09 2011

While some market participants withdrew temporarily from the uranium spot market earlier in the week due to the steep price increases, they returned in the early days of February. 
As a result, the spot price for one pound of uranium oxide gained US$0.75, reaching US$73.00/lb and five transactions were concluded in the week, according to TradeTech. 

This price was held until February 7, when the Ux Consulting Company reported the same price as unchanged from the previous week.

However, near-term supply remains extremely thin and the timing of deliveries remains an issue.

Meanwhile, Cameco Corp announced plans to buy uranium produced in Finland. It signed two agreements to buy output from the Sotkamo nickel-zinc mine in the east of the country.

The mine’s owner, Talvivaara Mining Co expects to produce around 900,000lb of uranium annually once it ramps up to full production. Construction of the uranium extraction circuit is scheduled for completion in 2012 and Cameco will buy uranium concentrate from the mine through December 31, 2027.

“Cameco is already a supplier of uranium fuel to generate clean electricity for Finnish utilities and their customers,” stated Cameco’s CEO Jerry Grandey. “Cameco’s strategic goal is to double uranium production from our existing assets by 2018. 

Our deal with Talvivaara will provide Cameco with an additional source of uranium supply over and above what we expect to produce from our properties.”


Energy Resources - ERA Rejects Poison Mine Water Concerns

Published on Wednesday February 09 2011

A senior traditional owner in Kakadu National Park is calling on the Australian government to reject plans to expand the Ranger uranium mine.

Senior traditional owner Yvonne Margarula said the Mirrar people in Kakadu are concerned Energy Resources of Australia can't manage the waste water at its Ranger mine.

She said traditional owners were not confident that the waste water was being safely managed after milling operations were suspended last month. "We are worrying about what might happen, poison water," Ms Margurula said.

She said the mine's processing plant was shut down for three months because the tailings dam was almost full. "The water getting bigger, it's going downstream," she said.

She said Aboriginal people living in the area were worried about the health of their communities, wildlife and nearby world heritage listed wetlands. "The mining company - they wouldn't listen to us," she said.

ERA chief executive Rob Atkinson said ERA was paying attention and he'll work with traditional owners to help allay their fears. 

"Water management is something we take very seriously. We also take the concerns of our traditional owners very seriously," Mr Atkinson said.

"We take every possible step to ensure we protect not only the business but also the environment." The Gundjeihmi Aboriginal Corporation which represents the Mirrar is now calling for a study into surface water that comes out of the mine.

Mr Atkinson said he supported a new water study and ERA will meet with traditional owners to discuss their concerns.

"A review which hopefully includes the regulators and supervising scientists as well," he said. Traditional owners say the analysis must be done independently.

ERA is submitting a draft environmental impact statement later this year for new mining at the Ranger site.


February 3, 2011

Kentucky Senate Panel OKs Bill On U.S. Nuclear Plants

Published on Thursday February 03 2011

FRANKFORT, Ky. Wednesday, February 2, 2011 — A western Kentucky lawmaker whose district is home to a uranium enrichment plant resumed his perennial push Wednesday to lift the state's ban on the construction of nuclear power plants.

State Sen. Bob Leeper said his legislation, meant to signal Kentucky's friendliness to the nuclear industry, would put it on "equal footing" with other states if the federal government approves the construction and operation of new plants.

Leeper's bill cleared the Senate Natural Resources and Energy Committee over opposition from three lawmakers and a leading environmental activist. The measure, backed by Democratic Gov. Steve Beshear's administration, now heads to the full Senate, which has supported removing the moratorium in past years.

"We must recognize the value of nuclear power and the importance of allowing nuclear power to be a part of the energy mix in our state," said Leeper, an independent from Paducah.

Leeper's district is home to the Paducah Gaseous Diffusion Plant, a uranium enrichment plant on 3,400 acres 15 miles west of Paducah. Uranium is reprocessed at the plant and enriched for use as nuclear fuel.

State law prohibits nuclear power plants from being built in Kentucky until the U.S. has a permanent storage facility to contain radioactive waste.

A proposed high-level radioactive waste facility at Yucca Mountain in Nevada, about 90 miles northwest of Las Vegas, has been discussed since the early 1980s. Whether that proposed facility will ever open remains uncertain; the Obama administration has cut funding for the project without naming an alternative.

Leeper has pushed for years to lift Kentucky's ban on nuclear power plants, but his efforts have stalled in the House.

Leeper predicted a "timely vote" by the Senate to give the House ample time to consider the bill. Leeper, chairman of the Senate Appropriations and Revenue Committee, said he'll "try to make our case and work with the House."

The bill was opposed Wednesday by a lawmaker who pointed to Kentucky's past problems with nuclear waste.

Sen. Robin Webb, D-Grayson, cited the ill-fated Maxey Flats, a nuclear dump site in Fleming County that opened in the 1960s and stored low-level radioactive waste when it was operational.

The facility was an attempt to attract the nuclear industry to Kentucky, but it closed in the 1970s because water _ contaminated by radiation _ was found migrating beyond the site's borders.

"I have seen firsthand the environmental and human impact of improper waste disposal," Webb said.

Tom FitzGerald, director of the Kentucky Resources Council, told lawmakers that obstacles would remain to nuclear plant construction even if Kentucky lifted its prohibition. Those obstacles include rampant cost overruns in the nuclear power industry, security and safety issues and waste disposal issues, he told the committee.

"It's not too much to ask, before we go forward in this regard, that ... the nuclear industry have a permanent waste disposal strategy in place for waste that will have to be managed for hundreds of thousands of years because of their potential ecological and human health risks," he said.

Leeper said lifting the ban could benefit Kentucky's economy even if a plant isn't built in the state. It would enhance the state's attractiveness to suppliers that aid in constructing nuclear plants, he said.

"Why would they come to a state that's not friendly to nuclear?" he said.
The legislation is Senate Bill 34.

February 1, 2011

Uranium Spot Price Surges To New 52 Week High US$73.00 P/Lb

Published on Tuesday February 01 2011

Energy Resources of Australia's (ERA) Ranger uranium mine and its uncertain potential for expansion was driven home last week in the spot uranium market. ERA announced it would have to close its processing plant for three months and the spot price responded with a US$3 jump to US$72+ P/lb.

This is the first time the price has been over US$70 since 2008 and reflects a backing off in price from sellers in the market, according to industry consultant TradeTech, and a simple backing out of the market by many as well.
The irony for ERA is of course that while losing from lost production it wins from higher uranium prices on new contracts. The twist is the company will need to make up the shortfall on existing obligations and that has the spot market expecting to see ERA in as a reluctant buyer. Management has suggested current inventories will cover that shortfall, but the sellers are not taking the risk.

Spot supply was already thin ahead of Australia's wet weather, Tradetech notes, which has been reflected in the uranium price's steady rise. Now it's even thinner. 

Six transactions totalling 1.2mlbs were reported in the market last week and new demand continues to emerge.
The term market, which better reflects the longer term contract nature of uranium pricing, is also seeing new demand albeit the mid-term price indicator remains steady at US$64/lb and the Long term at US$67/lb.