Uranium Week: Uncertainty Reigns

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED. For more info SHARE ANALYSIS: ERA

By Greg Peel

Kyushu Electric Power Co’s Sendai units 1 and 2 are reported to be the closest of Japan’s 48 idled reactors to meeting the stringent new safety regulations being imposed by the Japanese regulator. The regulator last week delayed until later this week an interim report on the reactors’ potential restart, declaring additional evaluation of measures to deal with severe accidents was required.

If the regulator does issue approval this week, Kyushu Electric would still need to file other documents, industry consultant TradeTech reports, to complete the restart approval process.

And so we continue to wait.

In supply-side news, Energy Resources of Australia ((ERA)) has begun to reinstate production at its Ranger aboveground mind in the Northern Territory, which was shut down last year after a major leach tank failure. This particular restart has also taken longer than analysts had expected, with ERA selling only from stockpiles in the June quarter.

In the meantime, test drilling of ERA’s Ranger 3 Deeps underground resource has encountered poor geotechnical conditions. As far as Credit Suisse is concerned, the increased costs implied by the problem suggests the upside potential of the project has now “vanished”.

As an investment prospect, ERA’s potential depends entirely on Ranger Deeps going ahead. UBS, for example, values the stock at $1.82 on a go-ahead and $0.05 if the project is abandoned. This binary call leaves analysts divided, with Credit Suisse having now lost confidence, hence downgrading its recommendation straight to Underperform from Outperform, while UBS is still assuming a go-ahead and retains a Hold rating. JP Morgan (Underweight) does not believe the current uranium price environment justifies a go-ahead.

Last week saw very little activity in the uranium spot market, TradeTech reports, with only four transactions being conducted totalling less than 500,000lbs of U3O8 equivalent. Utilities were not involved. The term market saw a little more interest, with utilities settling on two mid-term and one long-term supply contracts.

Despite the lack of spot interest, TradeTech’s price indicator for the week rose US10c to US$28.30/lb, while term prices are unchanged at US$31/lb (mid) and US$44/lb (long).

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