Uranium Market Buyers Interest Returning

Published on Wednesday November 09 2011 (AEST)

Uranium industry consultant TradeTech closed its indicative spot uranium price at US$51.75/lb for the month of October. That's down US25c from the previous weekly spot price and also US25c down from the end-September closing price. And that about sums up the uranium market over the past couple of months ? a whole lot of not much.

October proved a very quiet month in the market, with 18 transactions completed for a total of only 2.2mlbs, down from 4.2mlbs in September. All month the spot price fluctuated in a range of less than US$2.00/lb. 

The lack of action is largely reflective of a stalemate between buyers and sellers, in which the buyers have not been all that keen, but sellers have not been prepared to lower prices to settle deals. It still appears US$50/lb is a rough line in the sand.

Also complicating matters have been differences in product demand (U3O8 and UF6) and differences in location of delivery requests across the globe, all of which underlines the fact there is no "real" global spot price for "uranium", and that's why TradeTech offers only an indicative price based on its market observations.

The industry remains unsure about levels of Japanese stockpiles no longer required, about ongoing US government plans to convert tailings stockpiles into useable product, and about the world's intentions from here with respect to nuclear energy, despite the Fukushima event now being eight months in the past. 

On the other hand however, the market has also been able to note ongoing corporate interest in uranium mining, most recently exhibited by rival bids for Canadian miner/explorer Hathor from industry heavyweights Cameco and Rio Tinto .

The good news is that a primary producer entered the market last week seeking 900,000lbs of U3O8 split between four different points of delivery. When a producer is buying spot uranium it usually implies a contract shortfall through lost production. TradeTech further notes several utilities ? the real end-users of uranium ? are contemplating entering the market for product in coming weeks.

The bad news is that the insignificant spot price movements of the last few months are an indication of sellers unwilling to sell too low, rather than a lack of sellers. Thus if some decent bids do begin to hit the market, TradeTech suspects they may be jumped on.

TradeTech settled its indicative spot price for last week at US$52.25/lb which is up US25c from the week before. Indicative term prices remain at US$55/lb (medium) and US$63/lb (long). 

Uranium Juniors - Mergers & Acquisition Inevitable In 2011

Published on Friday December 10 2010

Merger and acquisition activity involving Canadian Uranium Exploration companies is likely to pick up in the coming year, as nuclear firms around the world jostle to ensure access to future supplies of the fuel, said Emil Fung, the vice-president for corporate development at Vancouver-based CanAlaska Uranium.

CanAlaska, which has amassed a sizeable property portfolio and identified a number of early-stage prospects in the uranium-rich Athabasca Basin, has seen a step-change this year in the level of interest in the company and its assets, he said in an interview during a recent visit to Toronto.

The company already has agreements with Japan's Mitsubishi Corporation, a Korean uranium consortium and China's East Resources, and is in “active discussions with several very large parties” on further transactions.

“I think what we see now is a genuine push to actually enter into exploration in Canada. And that's very, very positive for us,” he said.

China alone has 26 reactors under construction, representing a third of the global total and India is also expected to add 12 new facilities by 2020, while other countries including Japan, Korea, Russia and Egypt are also building and planning new reactors, an executive from Cameco said earlier this week.

At the same time, the highly-enriched uranium deal between the US and Russia is widely expected to end when it expires in 2013 – taking a big chunk of secondary supply out of the market.

“There is going to pressure on the uranium price, and there is going to be pressure on who controls uranium, and therefore from the perspective of junior exploration companies you are going to see a lot of M&A activity,” Fung commented.

“I think if you are an executive in the uranium exploration business today and you are not aware of the M&A situation around you, then you are not doing your job.

“It's inevitable, consolidation is inevitable in this game.”

It is possible that the increased uranium prices and interest in the sector could result in more M&A for Canadian junior companies, GMP Securities analyst David Wargo agreed on Thursday.

URANIUM ADDS EDGE FOR REACTOR BUILDERS

The groups that build and market nuclear reactors realise that they can compete much more effectively for contracts if can offer customers uranium supplies to fuel the plants, especially as concern over future supplies of uranium heightens, Fung said.

“If you can sell a reactor, that's a huge GDP builder, and with the world's economy as depressed as it is today, you can't get better bang for the buck than selling a nuclear reactor, in terms of job creation and contribution to GDP

“And the ability to sell the fuel with the reactor is important, so companies that have uranium will be more aggressive in leveraging that in the sale of reactors.”

Countries like China with big nuclear build programmes and plans are looking at the supply picture, and realising the benefits of having a foot in uranium exploration, rather than just looking for available production, he said.

Fung, who began his career as a design engineer on Canada's Candu reactor in the mid-1980s, travels regularly to Asia for discussions with groups there.

“In the old model, buyers just wanted to know if you had uranium to sell,” he said.

“Now we are seeing a lot of interest, not only in China but from other countries as well, specifically in exploration.”

CanAlaska has always had some talks going on in the background for potential joint ventures on its prospects, but the negotiations are clearly now “more commercial”, he commented.

Also, while the firm's existing Japanese and Korean partners approached the investment more from a financial standpoint, the new group are much more operationally capable in terms of uranium exploration and mining.

The company would expect to sign joint ventures that included “heavy operational contributions” from its new partners, including by bringing in skilled people – a resource that is in short supply after several decades of almost no uranium exploration around the world.

Investors easily forget that uranium is a strategic commodity, for which buyers must plan some 20 or 30 years in advance to fuel nuclear reactors, Fung said.

“People are often hung up on what is the spot price today, what is the long-term price?

“If you have got a nuclear reactor, you don't mind paying whatever price it is to keep it running. Because whatever price you pay is a pittance compared with the cost of actually stopping that reactor and not having enough fuel to generate the electricity.”

P.S. Australian Exploration Company's will also, with little doubt become to some Major M&A activity in 2011

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Forget Gold and Oil, Buy Uranium!

Published on Sunday December 05 2010

Recent market volatility and uncertainty about the prospects of the dollar have pushed commodities to center stage. Gold, oil, even silver have risen without a real barrier to growth ahead. One metal, though, which has received little attention but poses atomic possibilities, is uranium.

Uranium is not traded in an exchange, but two firms, the UxC Consulting Company and TradeTech, have developed spot price indexes which have come to be accepted by the industry. UxC even sells future contracts at the CME. TradeTech’s uranium spot price index rose to a two-year high on November 30, reaching $60.25 per pound. By November 3, UxC’s future price for January 2011 stood at $61.00, while November 2015 was selling for $65.75.

An analyst told me they see prices at $65 for 2011, and have set a target of $75 per pound for 2012. “The fundamentals are strong and there will be financial speculation pushing them up, it’s a double-win,” said the analyst.

Uranium trading is highly volatile. Nick Carter, vice president of UxC, explained that 8 or 9 producers account for approximately 80% to 90% of world production. Much of the world’s uranium comes from regions that are themselves volatile, such as Kazakhstan, Niger and Namibia. Finally, Carter explained that the market “is very small,” making it susceptible to violent price swings.

“In 2007, oil prices jumped to about $137 per pound as lots of investors, hedge funds, bought into physical uranium,” said Carter. A look at the historical price chart proves the violent nature of the market. Uranium went from around $45 a pound to $137 in a few months; it made its way down almost as quickly.

“Before, this market was driven by investors, but now it’s shifting to a producer-cost market” explained Carter. The change is being caused by the expiration of the HEU-LEU contract, signed in 1993 by Russia and the US. The treaty, which expires in 2013, allowed the duty-free export of Soviet uranium extracted from nuclear warheads. Its expiration will put additional strains on the market.

Demand, in the current market, comes from, surprise surprise, China. As of January 2010, the Red Dragon had 11 operating nuclear reactors and 20 more under construction, or 1.9% of production, according to the International Energy Agency’s 2010 Nuclear Technology Review. “China has a very ambitious nuclear program and they have announced they will expand [their nuclear energy capacity] to about 80 gigawatts by 2020,” said Carter.

The U.S. dwarfs any other nation in terms of nuclear capacity, with 437 reactors in operation and 56 under construction. Actual capacity represents 20% of total energy production in the U.S.; at a global level, total capacity represents 14% of world energy production.

Buying physical uranium doesn’t seem like the best way to tap the growing market. Global X Funds has released a Uranium ETF (URA) last month. URA had gained 16.3% in about a month, from its November 5 inception to the closing price on December 3.

Miners are another way to tap the market. Cameco Corporation, based in Saskatoon, Canada, is one of the largest uranium producers in the world, accounting for 16% of global production, according to its website. The company, trading in both the NYSE and the Toronto exchange, boasts a market cap of $14.8 billion and recently hiked its annual dividend in Canada by 43%! Going from 28 Canadian cents to 40, CEO Jerry Grandey said “[the dividend hike] demonstrates our confidence in our business and in the long-term fundamentals of the uranium market.” Cameco is the largest holding the URA ETF. Its stock price has sky-rocketed, gaining 78.3% since early July, returning to its pre-Lehman values.

Mining behemoth BHP Billiton is another option. The Australian miners own the “world’s largest uranium deposit,” the Olympic Dam. BHP is in the midst of a two-year process to expand what will be the company’s “single largest investment within Australia.” BHP, which recently gave up on its attempt to take over fertilizer’s top dog Potash, has performed strongly since the summer, gaining 43% since early July.

Ian Wyatt of Seeking Alpha suggests that “the big money will be made [with] small-cap stocks like Uranium Energy Corporation which has seen shares rise 180% since August 31.” The company has been focusing on acquisitions, especially in the Southwestern area of the US (Texas, Wyoming, New Mexico, Arizona, Colorado, and Utah), developing extended exploration databases. Through November, the company began drilling and production at different projects in South Texas.

Uranium is a violent commodity with huge prospects for growth. As the push for cleaner and cheaper energy continues, the radioactive metal will come to the fore. All four BRICcountries are already using nuclear energy, with Korea, Mexico, and others in the mix (track them through the Global Nuclear Energy ETF PJN). The market has its attractiveness, but, like radioactive materials, it carries huge risks.

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Cameco Corp. Receives Skepticism As Global Uranium Supplies Dwindle

Published on Wednesday December 01 2010

Cameco Corp. plans to begin output at the world’s largest untapped uranium deposit in 2013, just in time to make up for a shortfall in global supplies.

The Project’s critics say it won’t happen.

Cameco, the world’s second-largest uranium producer, is developing the Cigar Lake mine in Saskatchewan beneath almost a half-kilometer (1,641 feet) of water-soaked sandstone. The mine, six years behind schedule because of floods, could meet 10 percent of current global needs.

Uranium use will exceed supply through at least 2015, according to the Royal Bank of Canada. China is building 25 nuclear reactors, almost double the number in operation, while Russia ends a program to extract uranium from atomic warheads.

“The world needs Cigar,” said Thomas L. Neff, a physicist at the Massachusetts Institute of Technology, who in the 1990s devised the so-called HEU, or highly enriched uranium, program to decommission the warheads.

Cameco said Nov. 8 it will proceed with an oil-industry technology to freeze the ground at the deposit to prevent more floods. Preventing further delay is crucial to Chief Executive Officer Jerry Grandey’s goal of doubling the Saskatoon, Saskatchewan-based company’s output to 40 million pounds by 2018.

“Since the HEU deal increasingly looks like it will come to a full stop by the end of 2013, it’s important from a global supply perspective that Cigar be there about the same time,” Grandey said in a Nov. 12 interview.

Uranium from the HEU program is responsible for almost 10 percent of U.S. electricity generation, Neff said.

Cigar Lake Joint Venture Partnership

• Idemitsu Canada Resources Ltd., 7.875%
• Cameco Corporation (mine operator), 50.025%
• AREVA Resources Canada Inc., 37.100%
• TEPCO Resources Inc., 5.000%

Earlier Disappointment

Some analysts and investors who track Cameco say it will miss its deadline. Duncan McKeen, a Montreal-based analyst at Macquarie Capital Markets, expects Cigar Lake won’t begin output until 2014. John Redstone, a Montreal-based analyst at Desjardins Securities Inc. who visited the project in September, predicts a 2015 startup.

“When someone has disappointed in the past, you have to discount the guidance they give,” said John Wong, a portfolio manager at New City Investment Managers in London who helps manage $450 million, including 175,000 Cameco shares. “Startup could be six months to a year later than projected.”

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Uranium Stocks Are Hot

Published on Sunday November 28 2010

Uranium stocks have suddenly turned red-hot and we have one of the best of them on our Canada Report Recommended List.

Cameco Corp. (NYSE:CCJ) is the largest uranium producer in the world. It operates out of Saskatchewan, which is a rich storehouse of commodities that are in high demand right now, including potash and oil.

We first recommended Cameco to Canada Report readers in August 2008 when the shares were trading at $32.66. Within weeks, Lehman Brothers collapsed and the world was plunged into the worst financial crisis since the Great Depression. Cameco stock fell to a low of $12.95 in February 2009 as the price of uranium tumbled.

But all that is history. Cameco shares have moved sharply higher in recent weeks thanks to a surge in world uranium prices. After hovering in the low $40s per pound range for the first half of the year, the price began to move up in August and reached $48 a pound in September. Since then, it has spiked dramatically, trading this week at more than $60 a pound.

TD Securities says the price jump is due to new demand from China and has raised its 2011 forecast to $62.50 a pound with a $75 target in 2012.

The big price move has prompted renewed investor interest in Cameco. As recently as July, you could have purchased the stock for around $21. Now it is trading in the $37 range and is poised to move a lot higher.

The price run-up happened despite a 43% drop in third-quarter net earnings compared to 2009. On Nov. 8, the company reported a profit of $98 million (25c a share) down from $172 million (44c a share) last year (figures in Canadian currency). For the first nine months of the 2010 fiscal year, earnings were $308 million (78c a share) compared to $501 million ($1.29 a share) last year.

However, CEO Jerry Grandey put a positive spin on the results in his comments. “Production volumes are 17% higher than in 2009, while production costs are lower,” he said. “Our U.S. dollar realized prices have also risen, illustrating the strength of our contract portfolio.

“As we advised earlier this year, revenues were lower in the third quarter due to the timing of uranium deliveries. We expect about one-third of our uranium sales will be delivered in the fourth quarter.

“We are on track to double our annual uranium production from existing assets by 2018. Our growth strategy is in place to ensure we remain among the world’s leading uranium suppliers to those who choose to use safe, clean and reliable nuclear power.”

The stock has already made a big move but is still at a level where I consider it to be a buy for those who want exposure to what is shaping up to be a new bull market in uranium.

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Mega Uranium Completes Diamond Drilling Program At Kintyre Rocks Project

Published on Wednesday Nov 24 2010
 

Mega Uranium Ltd. (MGA.TO: News ) said Tuesday that it has completed a 1831 meter, eight hole diamond core drilling program at its wholly owned Kintyre Rocks project

in Western Australia.

Drilling was on a tenement adjoining the lease containing the Cameco-Mitsubishi joint venture's 79 million pounds U3O8 Kintyre resource, which is currently in prefeasibility.

The diamond drilling follows up on Mega's two previous reconnaissance drilling programs on the tenement which contributed to the identification of three buried uranium targets, all within a six kilometer radius of the Kintyre deposit.

According to the company, the drilling program has tested two of the targets, Area 1 and Gleneagles. Drilling of the third target, Southern Cross, was deferred to 2011 after problems were encountered in accessing the site.

Mega said its next phase of drilling in Area 1 will be based on the results of detailed structural and lithological logging of core. This information will be combined with geochemical vectors from all holes and a detailed interpretation of both ground electromagnetic and airborne magnetic surveys to optimize the selection of drill targets. 

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Uranium Set To Out Perform Gold

Published on Monday Nov 22 2010

If global media reports are to be believed, uranium is all set to beat gold this year as far as price rise is concerned.

According to a report appeared in the new York Times, when Global X Funds of New York announced plans for two exchange-traded funds — one for gold stocks, the other, uranium, the one which got the maximum attraction was the uranium fund not the much-hyped gold.

Global X’s Uranium ETF — with holdings in companies like the Cameco Corporation, Paladin Energy and Uranium One — was a hit as soon as it went on sale on November 9, with early trading volume outpacing Global X’s gold ETF by five to one.

Again uranium industry insiders were caught off guard by a deep run-up in spot market prices, which are now about $58 a pound, up sharply from the low $40s in the summer.

It appears that the character of the spot market has changed markedly over the past few months from one that was heavily oversupplied with weak demand to one that has high levels of demand with very little supply, said a report in New York Times.

The price surge hints at a confluence of significant changes — a perfect storm now sweeping through the global nuclear power industry, especially in Asia. With China recently moving to accelerate sharply its nuclear building program by 2020 — the showpiece is the 3,300-megawatt Taishan plant in Guangdong Province, due to come online in 2013 — the country’s nuclear utilities are now trying to secure fuel supplies for years to come.

On November 1, China’s long-term planning agency announced that by 2020 it intended to raise nuclear power’s share of the country’s total energy production to 112 gigawatts, or 7 percent, up from the previous target of 70 gigawatts. That translates into an additional 82 million pounds of uranium.

Just as Global X’s uranium ETF went on sale, the French nuclear giant Areva signed a 10-year, $3.5 billion deal to supply 20,000 tons of uranium fuel to the China Guangdong Nuclear Power Corporation. Areva is a minority partner in the Taishan plant, described as the largest civil nuclear project ever. Cameco signed a similar deal earlier this year.

Russia, South Korea and Pakistan are also developing reactors and preparing to stockpile long-term inventories. The activity isn’t just domestic: China is reported to be helping Pakistan build five reactors, while South Korea recently won a large reactor project in the United Arab Emirates.

These moves contrast sharply with the situation in North America, where many nuclear projects are stalled because of economic uncertainty and a lack of government financing. Still, many analysts anticipate the Asian nuclear program will drive uranium prices to $70 to $80 a pound in the next several years — a level that will set off a new wave of exploration and mine development.

Lacking domestic uranium sources, China and companies like Paladin are also beginning to develop uranium mines in African countries including Namibia and Niger.

These latest developments are welcome news for uranium producers, some of which struggled in recent years after a mid-2000s boom was followed by a price collapse.

Over the last decade, Kazakhstan rapidly became the world’s largest uranium producer, overtaking Canada with vast increases in production.

Further complicating the picture was the fact that many nuclear utilities were acquiring fuel on the so-called secondary market — reprocessed uranium from decommissioned warheads, uranium tailings and spent reactor fuel.

Indeed, as 2010 draws to a tumultuous close, many uranium industry insiders are thinking ahead to the state of the market circa 2014 and beyond.

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Uranium-Mining ETF to Trade in New York, Global X Says

The world’s first exchange-traded fund linked to uranium-mining companies will begin trading in New York tomorrow, according to Global X Management Co., the issuer of the security.

The ETF will track an index that consists of 23 miners and refiners including Cameco Corp., the world’s second-largest uranium producer, Uranium One Inc. and Paladin Energy Ltd., said Bruno del Ama, the chief executive officer of Global X. The shares will initially sell for $15 each, and the ticker for the fund listed on the NYSE Arca stock exchange will be URA, he said.

“There are a lot of nuclear reactors being built around the world, and there’s already a short supply of uranium,” del Ama said. “With new demand coming into play, that’s going to increase prices of uranium, and obviously the mining companies that produce uranium are going to benefit tremendously from that.”

Global X, a New York-based asset manager, also has an ETF tracking gold-exploration companies that will begin trading today. The ticker of the fund, which tracks 30 explorers, is GLDX, del Ama said by telephone yesterday.

“There’s going to be a huge amount of interest,” he said. “We’ve seen a lot of inquiries from hedge funds, institutional investors and retail investors.”

Global X also provides ETFs linked to silver and copper miners.

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Northern Territory Govt Backflips On Uranium Mine

Published on Wednesday Sept 29 2010

The Northern Territory government has withdrawn its support for the development of a uranium mine near Alice Springs two weeks out from a local by-election.


Environmental groups have welcomed the government's opposition to the uranium mine at Angela Pamela, about 20km south of Alice Springs, but question the timing of the announcement.


A by-election will be held in the reasonably safe Country Liberal Alice Springs seat of Araluen on October 9, following the retirement of opposition deputy leader Jodeen Carney.


NT chief minister Paul Henderson said the decision to oppose the mine, having previously granted an exploration licence to Cameco, was due to strong community opposition to the project.


'Labor's Araluen candidate, Adam Findlay, has also been receiving this feedback very strongly while doorknocking in the electorate,' Mr Henderson said in a statement released on Tuesday.


'We also acknowledge Alice Springs is a tourism centre and a mine in such close proximity to the town has the very real potential to adversely affect the tourism market and the Alice Springs economy.


'I reiterate this decision does not mean the Northern Territory Government is opposed to the establishment of new uranium mines elsewhere in the Territory.'


Mr Henderson acknowledged that final approval of a mining lease at Angela Pamela was the responsibility of the federal government, and that the commonwealth had the power to override any decision made by the territory government.


The Australian Conservation Foundation's Dave Sweeney told AAP there was nothing like a bi-election to make the federal and NT governments listen to the concerns of the community.


But he welcomed the announcement, adding that the NT government's change of heart would at least be a 'significant procedural and political road block'.


Australian Greens uranium spokesman Scott Ludlam urged the federal government not to override the wishes of the NT.


'I sincerely hope the Country Liberals will make the sensible decision to support the wishes of the Alice Springs community and join in opposing the mine,' Senator Ludlam said in a statement.

Cameco Buys Uranium as Investment to Capitalize on Price Slump

Published on Thursday Sept 16 2010

Cameco Corp., the world’s second- largest producer of uranium, bought the nuclear fuel on the immediate-delivery market this year as an investment to take advantage of a price drop.

Uranium-oxide concentrate fell to a 2010 low of $40.50 a pound in the spot market in the week through March 1, a drop of 9 percent from last year’s close, according to data from Roswell, Georgia-based Ux Consulting. Prices have since climbed to $48, the highest level in more than 10 months.

“There were a number of times this year when we thought uranium was a good investment to buy, and that is what we did,” George Assie, Cameco’s senior vice-president of marketing and business development, said in an interview in London yesterday. “At times we’ll see material in the market that we think is very attractively priced, so we will purchase.”

Price gains in recent months reflect uranium’s positive fundamentals, Assie said. Fifty-nine nuclear reactors are being built to add to the 440 operating globally, data from the World Nuclear Association shows. An accord under which uranium from dismantled Russian weapons is turned into fuel for U.S. nuclear power plants is scheduled to expire in 2013.

The end of the U.S.-Russian Highly Enriched Uranium Purchase Agreement will shrink supply of the metal, according to Assie. Saskatoon, Saskatchewan-based Cameco has yet to “rule out” buying more uranium on the spot market, he said.

Production Goal

“We think the price is on an upward trend,” Assie said. “We have a fair degree of confidence we can place it into contracts at a higher price,” he said of spot uranium purchased by the company.

Cameco markets between 6 million and 7 million pounds of uranium a year as part of the HEU Purchase Agreement, which will be replaced by an increase in its own output, according to Assie. The company aims to double last year’s production of 21 million pounds by 2018, he said.

The Cigar Lake joint venture being developed in Canada will be key to reaching the production goal, Assie said. The site contains the world’s largest undeveloped high-grade uranium deposit, Cameco’s website shows. Paris-based Areva SA, Idemitsu Canada Resources Ltd. and Tepco Resources Inc. are the company’s partners.

Production at the venture is expected to start in the middle of 2013, rising to full output of 18 million pounds in 2017, according to Assie. Cameco’s share would be 9 million pounds, he said.

Purchases by Banks

Investment banks also were buyers of spot uranium this year, according to the executive.

“The banks will certainly step in when they see prices are soft,” Assie said. “On occasion when we bought material, it has turned out it has been them on the other side of the transaction.”

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."

URANIUM POISED TO REBOUND AFTER 3 YEARS OF DECLINES

Uranium Bottoming as China Stockpiles 10,000 Tons From Cameco
July 11, 2010, 8:42 PM EDT


July 12 (Bloomberg) -- China is buying unprecedented amounts of uranium, signaling that prices are poised to rebound after three years of declines.

The nation may purchase about 5,000 metric tons this year, more than twice as much as it consumes, building stockpiles for new reactors, according to Thomas Neff, a physicist and uranium- industry analyst at the Massachusetts Institute of Technology in Cambridge. Prices will jump by about 32 percent next year, the most since 2006, RBC Capital Markets said.

India and China are leading the biggest atomic expansion since the decade after the 1970s oil crisis to cut pollution and power economies growing more than twice as fast as Europe and North America. The boom, combined with slowing supply growth, may benefit Cameco Corp., a co-owner of the world’s largest uranium mine, and Areva SA, the largest builder of reactors.

“China’s demand is insatiable,” said Dave Dai, an analyst at the Daiwa Institute of Research in Hong Kong. “They will have to take almost whatever is available.”

Uranium will climb to an average $55 a pound next year as demand erodes supplies, according to Adam Schatzker, a metals analyst at RBC in Toronto. Max Layton, at Macquarie Bank Ltd. in London, forecasts it will climb to $56.25 next year and $60 in five years.

Uranium for immediate delivery was at $41.75 a pound on July 5, according to the Ux Consulting Co. weekly price assessment. Spot trades of uranium oxide totaled 20.9 million pounds this year, about $873 million in today’s prices, Roswell, Georgia-based Ux Consulting said.

Price Slump

Uranium has tumbled 69 percent since peaking at $136 a pound in July 2007 as companies boosted production, according to the firm’s data. At least 27 mines in nine countries began operating in the past 10 years, adding as much as 65 million pounds a year to global output, according to Saskatoon, Saskatchewan-based Cameco, part owner of McArthur River mine in Canada, the world’s largest deposit of high-grade uranium. Six mines are scheduled to start in 2010.

“The uranium bull market of 2006 and 2007 stimulated the development of new supply, but we do not think it is enough,” Schatzker wrote in a report. “The prevailing uranium price is too low to stimulate sufficient supply to cover future reactor requirements.”

The cost of mining one pound of uranium is about $31, up from $26 in 2007, according to Edward Sterck, an analyst at BMO Capital Markets in London.

‘Stockpiling Like Crazy’

China’s demand for uranium may rise to 20,000 tons a year by 2020, more than a third of the 50,572 tons mined globally last year, as it boosts output to 85 gigawatts, nine times its current capacity, according to the World Nuclear Association. The nation agreed on June 24 to buy more than 10,000 tons over 10 years from Cameco.

India’s needs will grow 10-fold to 8,000 tons as it quadruples capacity to 20 gigawatts, according to Jagdeep Ghai, finance director at state-owned Nuclear Power Corp.

“They are essentially stockpiling in anticipation of new reactor build,” Neff, who is an independent director of GoviEx Uranium Inc., a privately held exploration company with interests in Niger, said in a July 6 telephone interview. “They are stockpiling like crazy.”

China plans at least 60 new reactors by 2020, Xu Yuming, executive director of the China Nuclear Energy Association, said in Beijing on July 6. The average 1,000-megawatt reactor costs about $3 billion, according to the World Nuclear Association. Loading a new reactor requires about 400 tons of uranium to start, Neff said.

Areva, Cameco, Paladin

China’s economy may grow 10.1 percent this year, while India’s expands 8.6 percent, according to analysts’ forecasts compiled by Bloomberg. U.S. gross domestic product will increase 3.1 percent and Europe’s will grow 1.1 percent.

Companies that build reactors may be among the biggest beneficiaries. Areva’s shares have tumbled 53 percent in the past three years. Miners including such as Cameco, whose stock has fallen 60 percent since then, Perth, Australia-based Paladin Energy Ltd., which has lost 63 percent, and Darwin-based Energy Resources of Australia Ltd., which is down 25 percent, may also benefit.

“Longer-term it does look as though there’s going to be a shortfall of uranium and ERA and Paladin should benefit from higher prices if that plays out,” said Lyndon Fagan, a Royal Bank of Scotland Group Plc analyst in Sydney.

Cutting Pollution

Chinese Premier Wen Jiabao aims to cut pollution by reducing energy consumption 20 percent in the five years through 2010. The country pumped 6.5 billion tons of carbon dioxide into the atmosphere last year, U.S. Department of Energy data show, more than any other nation. Atomic plants produce virtually no greenhouse gases, though spent fuel remains radioactive for thousands of years and requires re-processing and storage.

China National Nuclear Corp., the nation’s first operator of reactors, said on June 28 it’s exploring for the fuel in Niger, Namibia, Zimbabwe and Mongolia.

“We’re just beginning to see the initial stages of China going abroad to buy stakes in uranium mines, but this is a trend we’re going to see more and more in the future,” said Stephen Kidd, head of strategy and research at the World Nuclear Association in London.

Growing uranium use may create a shortfall by the second half of this decade because not enough new production is planned, according to Friedel Aul, director of fuel services at Nukem Gmbh, an Alzenau, Germany-based uranium trader and broker.

Slowing Production

“Current production is based on mines that have been in operation for a long, long time,” he said. “With startup costs, certainly to bring a mine on line today is much more expensive than it was 10, 15 years ago.”

Production growth, including supplies recycled from Russian warheads under an agreement ending in 2013, may slow to 4.8 percent this year and 3.4 percent in 2011, according to RBC. It increased almost 12 percent last year.

The last time this many reactors were planned was in the 1980s, after the 1973 and 1979 oil shocks prompted the Organization of Petroleum Exporting Countries to boost prices for crude. By 2015, a new reactor may start every five days, compared with an average of one every 17 days during the 1980s, according to the World Nuclear Association.

Commissioning new plants is a “game-changer” for uranium, said Mark Pervan, head of commodity research at Australia and New Zealand Banking Group Ltd. in Melbourne. Though many won’t come on line for as long as two years, “speculative interest” may drive prices to the “$60 to $80 range pretty quickly.”

Prices may recover as demand improves, said Dustin Garrow, a Denver-based executive general manager of marketing for Paladin, the world’s ninth-largest uranium producer.

“We see demand picking up noticeably and it is not just the Chinese, there are other utility consumers that are now showing interest,” Garrow said in a July 6 interview. “We could start to see fairly substantial price increases in the spot market later this year.”

URANIUM GIANT CAMECO STRIKES EXPLORATION DEAL WITH RED METALS LIMITED -RDM

Announcement 13 May 2010
Red Metal (ASX: RDM) has struck a farm-in and an agreement with Cameco, one of the world's largest uranium miners.

The deal, with Cameco Australia, is over Red Metal's Lakes uranium project in the highly prospective Frome Sub-Basin of South Australia.

Cameco will gain an exclusive right over a six-year period to explore for uranium and earn a 51% interest in any or all of the four Red Metal Lakes Project tenements.

Cameco is required to sole fund AUD$4 million of expenditure and should it elect to earn a 51% interest in all four tenements, it would be required to contribute AUD$16 million.

The joint venture ensures a work program with a minimum total project annual commitment of $700,000 on exploration in the first year and $500,000 in subsequent years.

Once Cameco has earned 51%, Red Metal can elect to contribute to further exploration and development at a 49% interest or reduce to a 30% interest free-carried to a decision to mine.

Exploration on the Lakes project targets giant sandstone-hosted, roll-front type uranium plays hosted in the same Tertiary sedimentary sequences that host the nearby Beverley and Four Mile uranium deposits.

An extensive regional drill program completed last field season identified previously unrecognised thick, oxidised sand sequences in the prospective Eyre and Namba Formations at several locations as well as some anomalous uranium in reduced channel sands.

The anomalous uranium and oxidised sequences are considered significant as they indicate oxidising and potential uranium-bearing fluids may have passed through the rocks and deposited uranium mineralisation further down flow.

Cameco brings significant uranium exploration and development experience to the project.

Red Metal’s strategy of targeting giant ore deposits in many of Australia’s fertile terrains continues to attract major mining companies like Cameco as partners on attractive joint venture terms.

CAMECO Q4 PROFIT BEATS ESTIMATES

Cameco, the world's No. 2 uranium miner, earned C$598 million ($566.8 million), or $1.52 a share, in the fourth quarter ended Dec. 31. That compared with C$31 million, or 8 cents a share, a year ago.

Excluding one-time items, the company earned C$248 million or 63 cents a share.

This was driven by higher profits in gold, as realized selling price for gold stood at $1,129 per ounce in 2009 compared with $806 per ounce in 2008, the company said.

Analysts polled by Thomson Reuters I/B/E/S had expected on average a profit of 46 Canadian cents a share, before exceptional items.

Quarterly revenue rose 3 percent to $659 million.

Uranium revenues fell 2 percent in the period, as a 5 percent decline in sales volumes was countered by the impact of a 2 percent increase in our realized price, the company said.

Costs of sales for the quarter was C$30.29 up from C$24.16.

Cameco mines uranium primarily from its home province of Saskatchewan in Western Canada, as well as Kazakhstan and the United States.

Its main project is the Cigar Lake deposit in Saskatchewan, which flooded in 2006 and 2008 while under construction.

This month, the company said it had pumped out the flooded mine and should have it secure by October, at which point Cameco will be able to start looking ahead to a restart of construction.

The company said it is well positioned to meet its goal to double its annual mined output to about 40 million pounds by 2018.