Uranium's crystal ball is price sobering
The growth of nuclear power is still marching forward but the aspirations on uranium's price have dropped back a peg or two, according to the latest quarterly research by Sydney-based Resource Capital Research (RCR).
Posted: Sunday , 05 Oct 2008
The industry average long-term uranium price has been downgraded $US15/lb by RCR's just-released quarterly Equity Research Report from its third quarter report to $US80/lb and saying that in the current quarter it will trade between $US50-65/lb.
At the time the report was released the spot uranium price was $US55/lb.
RCR's principal, John Wilson, said global equity markets remain volatile and investor sentiment cautious and this has seen the junior end of the resource sector "disproportionately negatively impacted."
"A number of companies are trading below their cash backing and we expect smaller cap public companies to continue to face funding challenges," he said.
Expanding on a developing scenario in the June quarter, Wilson said there is likely to be increasing pressure on smaller companies to joint venture projects or merge.
Uranium fund sentiment and activity remain important factors in the outlook for the spot uranium price with holdings of around 20 M lb of U308.
The market valuation of Australian companies with one or more uranium projects is down 11% over the past month and down 44% over the past 12 months.
This compares with a selection of Canadian companies with one or more uranium projects, down 25% over the past month and down 57% over the past 12 months.
He cited junior companies making progress in Australia as being PeniNini Minerals (ASX: PNN) with its Crocker Well project in South Australia and Alliance Resources (ASX: AGS) as 25% partner in the Four Mile project (with Heathgate Resources associate Quasar) near the Beverley mine in SA.
RCR said that globally planned and proposed new nuclear power reactors have increased in the past two years.
From January 2007 to August this year there was an increase of 96 reactors from 222 reactors to 318 reactors - up 43%.
On the global bourse in the past month major uranium companies have had negative share price performance: Cameco (CCO) is down 14%, Denison Mines (DML) down 36%, Uranium One (UUU) down 11%, Energy Resources of Australia (ERA) down 9% and Paladin Resources (PDN) down 22%.
A positive note in the RCR report was that there is potential for nuclear power growth to exceed industry forecasts mid-term, which have seen significant upward revision in recent years.
"The impact of demand growth on the uranium price will, however depend on the speed of the supply response. Significant new mine supply could come to market by 2010, in particular, from Kazakhstan and Namibia that could push the market into surplus and exert downward pressure on the uranium price.
"Producers, however, could face significant challenges in financing and developing new projects, including spiralling cost pressures and potential delays variously relating to permitting, infrastructure development and commissioning."
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