China's Growing Appetite For Uranium

Published on Thursday December 09 2010

Is there any metal or, indeed, commodity in which China is not making the running — where China’s rising demand is not creating a wholly new dynamic in the global supply market? After some thought, one might have ventured uranium, that metal long dependent on the established generating markets of the old order – Russia, France, Japan, the US and, more recently, South Korea. But apparently even the uranium market is rapidly changing. According to an FT article, China is aiming to generate 5 percent of its electricity from nuclear power by 2020, in the process quadrupling its uranium consumption to 50 million-60 million pounds a year, according to UxC forecasts.

That compares with annual global demand of about 190 million pounds today and has seen the Chinese embark on an ambitious and aggressive buying spree at prices some 30 percent over current spot and twice spot prices of a year ago, tying up long-term supply offtake agreements and joint ventures. With minimal domestic production, just 2 million pounds this year, China’s imports have been equivalent to 20-25 percent of global uranium consumption and yet reactor building is still in its early stages with 23 reactors under construction but 120 planned, according to another article.

Ralph Profiti, analyst at Credit Suisse in Toronto, believes China is getting ahead of other consumers and, as with copper and non-ferrous metals, is building up a strategic stockpile before the Americans, Japan or Korea need to do their restocking.

If that is so, the US is particularly vulnerable. The country has over 100 nuclear reactors generating nearly 20 percent of the country’s electrical energy, but the US imports over 80 percent of its uranium supply. If uranium supply goes the way of other commodities, the US could increasingly be a hostage to the fortunes of an increasingly limited supply base as spot prices are driven higher and sources are tied up under long-term supply agreements. Which may explain why US authorities were so willing to pass approval for a Russian state-owned mining company, ARMZ, part of Rosatom power group, to control up to half of US uranium output by the middle of the decade.  The FT this week reported ARMZ has been approved by the Committee on Foreign Investment in the US, the government agency that vets foreign takeovers of US companies for possible national security implications. In November, the US Nuclear Regulatory Commission, which controls the ownership and operation of nuclear power facilities, also gave their go-ahead for ARMZ to take a 51 percent stake in Uranium One. The firm owns resources in Wyoming and plans under ARMZ’s control to ramp up production to between 2 and 4 million pounds by 2015 against a total US production today of about 4 million pounds.

Interestingly, the changing supply landscape has not escaped the investment community. BlackRock, said to be one of the largest investors in commodities, is said to be bullish on uranium, and an exchange-traded fund launched by Global X Funds has increased its holdings to $70 million in just three weeks since launch.

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Russian Uranium Giant ARMZ Now Set To Control 50 Percent Of US Uranium Output

Published on Monday December 06 2010

ARMZ, the Uranium-Mining unit of Rosatom Corp., Russia’s state-owned nuclear-energy company, may soon control as much as half of U.S. uranium production, after U.S. authorities approved its purchase of 51 percent of Canada’s Uranium One Inc., the Financial Times reported.

The deal is the latest sign of how, after a three-decade hiatus in new reactor projects, the US has lost control of key parts of the nuclear supply chain.

It also comes amid a sharp rise in the price of uranium on hopes that reactor construction will accelerate, led by China and other emerging economies.

ARMZ, the uranium mining division of Russia’s state-owned Rosatom nuclear power group, has taken a 51 per cent stake in Toronto-listed Uranium One which owns mines in Wyoming.

The two companies aim to bring the mines into production next year, and plan to increase output to 2m-4m pounds of uranium oxide per year by 2015. Total US uranium output will be about 4m pounds this year.

Vadim Zhivov, ARMZ’s director-general, said he understood concern about the deal. But he added: “It is 20 years since the Cold War, and no single country will be able to solve the energy challenges of the world.”

The tie-up was approved in October by the Committee on Foreign Investment in the US (CFIUS), the government agency that vets foreign takeovers of US companies for possible national security implications.

In November, the US Nuclear Regulatory Commission, which controls the ownership and operation of nuclear power facilities, also gave the go-ahead.

More than 80 per cent of US uranium consumption is imported, and Russia is one of its largest suppliers.

Nevertheless, Mr Zhivov acknowledged the company had a “hard road ahead” to prove to Uranium One shareholders that “a Russian state-owned company can . . . play by the rules of the modern developed world.”

Although China’s nuclear investment programme will make it the largest source of growth in the world uranium market, ARMZ plans to serve the US market from its Wyoming mines.

Once the deal closes, ARMZ expects to be the world’s fourth-largest uranium producer, and plans to ramp up production in Kazakhstan and the US to become the second-largest by 2015, behind only Kazatomprom of Kazakhstan.

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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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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."