Australian Uranium Sector Update

The spot uranium price is now US$44.50 per pound, which is down 5% from 3-month ago levels and compares to a spot price of US$52.50 per pound as at the end of last year. Prices rallied in October as an incident at the Olympic Dam mine saw a jump in the spot price to US$49.50 per pound, but this level has failed to hold.

Given the incident is likely to take about two million pounds of uranium out of the market by the first quarter of 2010 thanks to lost production at the project, industry consultant Resource Capital Research (RCR) suggests the current price weakness is a little concerning for uranium prices going forward.

Little change is expected in the near-term as RCR notes the Fund Implied Price, which is a good leading indicator for near-term spot prices, is currently trading at US$45 per pound having ranged between US$42-US$49 per pound since August. Most likely to influence prices in coming weeks according to RCR are expectations of increased uranium purchases by utilities on the buy-side, countered by ongoing concerns with respect to increased US Department of Energy liquidations on the supply-side. Currently RCR notes there are modest concerns in the market with respect to downside price pressures.

Long-term contract prices for uranium currently stand at US$61 per pound, down from US$70 per pound in December last year, while RCR notes there are 436 nuclear power reactors in operation and 53 under construction. Globally a further 436 reactors have either been planned or proposed, up from 376 in December of last year. This should boost long-term demand and so provide some support to prices in the years ahead.

Despite the spot uranium price issues, RCR notes the market valuation of Australian companies with one or more uranium project has risen 12% over the past month, 18% over the past three months and more than 350% over the past 12 months. This means the Australian uranium sector has outperformed its Canadian counterpart, where the gains have been 4%, 19% and 198% respectively.




Among the listed Australian plays making news this quarter, RCR notes African Energy Resources (AFR) has seen significant share price gains thanks to exploration success in Africa and the awarding of a mining license in Zambia, while Black Range Minerals ((BLR)) continues to make progress in acquiring the balance of the Hansen uranium deposit it doesn't already own.

Elektra Mines ((EKM)) continues to explore the Yamarna belt region in Western Australia and has returned some high grade discoveries of late, leading RCR to suggest a resource of one million ounces is possible by the middle of next year, while Energy and Minerals Australia ((EMA)) has also been active in drilling its Mulga Rock Deposits project. As well, the company is expected to announce a resource upgrade at its Ambassador deposit in the first quarter of next year.

Energy Resources of Australia ((ERA)) offers some valuation upside according to RCR if current exploration of its East Alligator River assets in the Northern Territory deliver good results, while Extract Resources ((EXT)) continues to lift its resources towards 600 million pounds. This means the key for the company will be how any project is structured for development in RCR's view.

Greenland Minerals and Energy ((GGG)) is due to provide a pre-feasibility study on the Kvanefjeld deposit sometime this month according to RCR, while Mid Exploration ((MEY)) continues to aggressively explore the Marenica deposit in Namibia, where there is potential for a heap leach operation.

For Monaro Mining ((MRO)) the focus according to RCR will be on advanced exploration drilling at its US projects in the first quarter of next year, while NGM Resources ((NGM)) has already returned some encouraging early results from its large strategic land holding in Niger, Africa.

While long-term Paladin ((PDN)) expects to grow its African operations even further, the current focus for the company according to RCR is the ramp-up of production at both Langer Heinrich and Kayelekera, where delays have already caused production guidance for 2010 to be lowered to 5.6 million pounds from 6.6 million pounds previously.

For PepinNini Minerals ((PNN)) exploration remains the focus as RCR points out along with the impending release of the Crocker Well Project bankable feasibility study the company also has some high grade gold, copper-nickel and other base metal targets that should keep the stock in the news in the first half of next year.

Toro Energy ((TOE)) has made ground in expanding its Wiluna resource base via the acquisition of some additional ground and RCR notes the company is cashed up to produce a bankable feasibility study on the project, while White Canyon Uranium ((WCU)) has almost reached the ore body at its Daneros project and so RCR expects first shipments of ore either this month or early in 2010.

Uranium Market Poised for Recovery in 2010

A declining trend in uranium prices continued into 2009, and TradeTech’s uranium spot price dropped to US$44.50 per pound U3O8 on December 31, 2009. However, buyers are expected to return to the market during the first quarter of 2010, as a number of utilities can justify discretionary purchases and buying from Asia is expected to remain strong.

Denver, CO January 7, 2010 -- A declining trend in uranium prices that began in 2008 continued into 2009, as TradeTech’s uranium spot price fell 15 percent from US$52.00 per pound uranium oxide (U3O8) at year-end 2008 to $44.50 on December 31, 2009.

The uranium market attempted to recover from the effects of a global financial crisis that began in late 2008, and the spot price strengthened by mid-year. However, this trend was short-lived as several sellers competed aggressively to conclude sales and the spot price fell again in the second half of the year.

In early October, the spot price climbed briefly as BHP Billiton reported damage to the main shaft of its Olympic Dam that would take months to repair. The company declared force majeure on certain uranium deliveries, which brought a number of buyers, primarily traders and financial entities, to the market and the price rose to $50.00 per pound U3O8. By December, however, the spot price retreated as the US Department of Energy’s sale of uranium to fund cleanup of the Portsmouth uranium enrichment facility overshadowed the market.

The drop in spot prices in the second half of 2009 caused lower expectations of market participants, especially among buyers. “The psychological effect of decreasing prices led many utilities to relax purchasing plans and turn away attractive offers in the expectation of further price declines. While 2009 was a relatively active year for term contracting, a substantial number of utilities, particularly in the USA, continue to wait in hopes of catching the market at the absolute bottom before securing supplies for the longer term,” said TradeTech President Treva Klingbiel.

“Buyers are expected to return to the market during the first quarter of 2010 as a number of utilities have indicated they can justify discretionary purchases for inventory at current price levels,” Klingbiel added. In addition, buying from Asia is expected to remain strong as India and China, in particular, forge ahead with plans for expanded nuclear energy programs to meet rising energy demand.

Paladin Energy Now On Cameco's Radar

Will Cameco Move Up The Nuclear Fuel Chain?

Wednesday, January 6, 2010

Andrew Willis

Cameco has $2-billion burning a hole in its pocket, and BMO Nesbitt Burns has an interesting take on where one of the world's largest uranium producers will spend its cash.

Cameco is flush after selling its stake in Centerra Gold, and is expected to do something with this capital, as earnings will drop by 20 per cent without Centerra’s contribution. Most analysts have rolled out a list of junior uranium plays as potential acquisitions, with Paladin Energy considered the most attractive target, and junior miner Berkeley Resources another possible purchase.

However, BMO Nesbitt Burns mining analyst Edward Sterck surveyed the landscape, and highlighted a potential deal with the cash-strapped British goverment.

Cameco could move up the nuclear fuel chain by acquiring the U.K. government’s one-third stake in URENCO group, which has four plants that enrich uranium for use in reactors. The British-based company’s web site explains that this is the highest value-added stage of the fuel supply chain.

After crunching the numbers. Mr. Sterck said: “acquiring a one-third stake in URENCO for $3-billion would dilute Cameco’s net present value per share by 10 per cent but increase earnings by over 40 per cent by 2014. A stake in URENCO looks like the most accretive transaction, but Paladin is also a strong candidate from an earnings perspective.”

When it comes to Paladin, BMO Nesbitt Burns said a takeover would need to be pitched at a 40 per cent premium to where the stock is now changing hands, “resulting in a 27 per cent dilution to Cameco’s net present value per share, but increasing earnings per share by as much as 30 per cent by 2014.”

Paladin currently boasts a $2.9-billion market capitalization.

China Leads World In New Nuclear Plant Projects

China Has Most Nuclear Projects

Source: Global Times December 29 2009
By Ji Beibei


China has the largest number of nuclear powered projects under construction in the world, officials from the National Energy Administration said.

Zhang Guobao, director of the administration, said during a meeting of energy Sunday that there are eight new nuclear power stations under construc-tion with designed capacity of 31.4 million kilowatts.

He said the eight projects accounts for more than 30 percent of nuclear power generating units under construction across the globe, Jinan Daily reported Monday.

One of the projects is the Haiyang nuclear power plant in Shandong Province. Construction of the project officially started Monday and its first nuclear unit will be put into operation in 2014, China National Radio (CNR) reported.

The 120 billion yuan ($17 billion) project is the second in China that uses advanced AP1000 technology, or the third-generation reactor designed by US-based Westinghouse Electric Co. The first application is Sanmen project in Zhejiang Province.

Once all the eight power units go into operation in 2020, they will have the capacity of the output of the Three Gorges Dam project in 2008.

Besides, the project can help China reduce green house gas emission per GDP because it emits 50 million tons less of green house gas compared with thermal power plants of the same scale, the report said.

Nuclear power is important to China especially in coastal areas where there's a high demand for power to fuel rapid economic growth, the World Nuclear Association said.

The association said China should achieve self-sufficiency in nuclear reactor design and construction in order to enhance the proportion of nucle-ar power in the whole power structure.

An earlier report by China Energy News quoted Zhang Huazhu, director general of China Nuclear Energy Association, as saying factors such as the lack of talent might affect the development of nuclear plants in China.

"There is a shortage of mature technicians in this field and this shortage may last for five to six years," said Zhang.

There are four tertiary education institutions offering related training, including Tsinghua University, Shanghai Jiao Tong University, Xi'an Jiao Tong University and Harbin Engineering University.

Getting sufficient uranium ore is another challenge facing Chinese nuclear power development.

China demand for uranium ore will be 10 times greater by 2030, the second in the world, as a result of rapid expansion of nuclear power projects, Reuters reported December 10.

But Director Zhang and Pan Zhiqiang, an official from China Nuclear Engineering Group Corporation, said the demand for uranium ore should not effect the nation's nuclear power development.

China's power was produced by fossil fuels, of which 80 percent come from coal, 2 percent from oil and 1 percent from gas, the World Nuclear Association said in 2006.

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