Published on Wednesday July 17 2013 (AEST)
Brace yourself: Uranium tipped for Explosive Rebound !
From: The Australian
July 17, 2013
MAYBE it was the heavy morning rain, or maybe it was the realisation that the market is doing more to damage the uranium sector than any number of marches through the streets of Fremantle could achieve. Either way, the collection of anti-nuclear activists that usually gathers outside the annual Australian Uranium Conference were for the first time in the event's history a no-show.
For the dozens of uranium explorers, developers and miners gathered inside, being ignored has become routine. Investors have shown little to no love for uranium stocks for more than two years, since the Fukushima nuclear disaster in Japan triggered a series of events that left the price of uranium and shares in uranium companies wallowing. The uranium price now sits below $US40 a pound, half the level required to get new uranium mines off the ground. For explorers, raising fresh equity to top up increasingly meagre bank balances is a near impossible prospect. Against that backdrop, however, is a strong conviction in the sector that their fortunes could be about to turn.
The supply and demand equation has been working against the uranium sector since Fukushima sparked an ongoing shutdown of almost all of Japan's nuclear power capacity. But even as Japan continues to work out what role, if any, nuclear will play in their energy future, China continues with a wave of nuclear development that could dramatically increase global uranium demand. For Julian Tapp, a former lieutenant to Andrew Forrest at iron ore miner Fortescue Metals Group and who now runs would-be uranium developer Energy and Minerals Australia, the uranium market is shaping up to become "iron ore on steroids". The outlook for uranium today is similar to that facing iron ore in the early 2000s, he says, when a becalmed iron ore price overshadowed the early signs of the massive demand growth set to emerge from China.
Today, Tapp says, China is embarking on a "massive" rollout of new nuclear reactors that will drive a major surge in uranium demand. "Not only is there a shortage coming, it seems there will be a sustained shortage. Even if all the current projects on the drawing board get up, it's difficult to see how there's going to be enough supply to keep up with demand," Mr Tapp told The Australian. Compounding the issue, he says, is the looming end of an international program to recycle Cold War-era nuclear warheads into fuel for nuclear power plants. Those supplies should be exhausted by the end of the year. "When (the uranium market) turns, it's likely to go quite a long way," Tapp says. "My estimate is somewhere in the range of $US120-$US140 (per pound) for the spot price." Until then, however, Tapp faces a real challenge in keeping EMA funded. It only has about $1 million in cash at present and needs to secure more -- a task Tapp admits will be difficult. EMA's dwindling bank balance is a familiar story across the uranium sector, but it is also one that could help in the industry's stockmarket revival.
Argonaut Securities analyst Matthew Keane is tipping a big rise in mergers and acquisitions in the uranium space in the coming year, driven in part by cashed-up companies preying on those running out of funding. "Looking into 2014 we would expect to see a higher level of M&A within the sector itself," he says. "We are now 2 1/2 years into a post-Fukushima decline in the uranium price, and a number of junior uranium companies are now really feeling the strain in terms of their balance sheet. The average cash balance across the junior balance in around $2.1m. "For those companies that do have cash, there is the opportunity for the cash-meets-project type acquisition." Adam Myers, a corporate finance partner with BDO, told the conference that those few players with money should be looking to take advantage of the opportunities in a depressed market. "There's certainly opportunities to pick up good-quality projects because companies are really running out of cash," he said. "It's worth looking at the market and seeing if there is a strategic deposit you can pick up." One player that says it is looking to buy unloved assets is Peninsula Energy. The company has seen its own share price plummet in recent years and is still trying to secure the $100m in debt funding it needs to develop its first uranium mine.
Still, it wants to add another project to its portfolio. Executive chairman Gus Simpson says he wants the company to acquire an early-stage project somewhere in Australia, to complement the company's other development projects in Wyoming and South Africa. "There are some 345 operating nuclear power stations in the world," he says. "As I speak there are 67 new nuclear power stations under construction; that's the most at any single time in history. And there are another 167 nuclear power stations that will be built over the next decade on top of those 65. That is a renaissance." Should that play out, don't be surprised if the anti-nuclear protesters manage to find their voice once again.