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Uranium Suffering From GFC Too

Commodities | Apr 01 2009

By Chris Shaw

Uranium prices have been under pressure in recent months and according to equity research group Resource Capital Research (RCR) the global financial crisis has been largely to blame as it has impacted on the market’s suppy/demand balance.

The group notes further price weakness is expected as while the spot price is currently US$42.50 per pound this is down from US$52.50 at the end of last year and the Fund Implied Price (FIP), which is a key leading indicator for spot prices, is currently at US$35.00 per pound. It has traded between US$30 and US$45 per pound in recent months.

Note: TradeTech lowered its weekly spot price indicator by a further US25c to US$42.25/lb.

In contrast to spot prices the current long-term contract price is US$69.50 per pound, down only slightly since December. According to RCR the divergence between spot and long-term contract prices can be explained by the global financial crisis forcing supply to increase on the back of increased selling by funds and reduced demand as utilities delay discretionary purchases.

The positive in the group’s view is industry fundamentals remain positive, with growth in the number of nuclear reactors expected to drive demand in coming years at the same time as the risk of a supply shortage in the medium-term, which it classes as between 4-8 years from now, has increased.

At present RCR notes there are 436 nuclear power reactors in operation around the world and 43 under construction, but as of February there were an additional 374 new reactors either planned or proposed globally. This is up from 318 as at the end of August last year.

In terms of uranium stocks the group notes the performance of Australian-listed plays has been reasonable as the market value of those companies with at least one project has risen 11% in the past month and is up 19% over the past year.

This has been driven by gains in the major players, as Energy Resources of Australia ((ERA)) has risen 11% and Paladin ((PDN)) 18%. As a means of comparison, Canadian companies with at least one project have risen 8% in the last month and 42% over the past 12 months.

The group notes conditions are tougher for those companies at the production and development stage as they are facing funding challenges from the global financial crisis at the same time as permit and commissioning issues and other development factors are increasing related cost pressures.

With respect to recent company specific news RCR notes Australian junior Alliance Resources ((AGS)) is planning to commence production in the first quarter of 2010, while White Canyon’s ((WCU)) Daneros project is scheduled to receive mine permits in the current half before starting production in the December half of this year.

As well the group notes a number of companies including Berkeley Resources ((BKY)), Energy Metals ((EME)), ERA, Greenland Minerals and Energy ((GGG)), Paladin, Toro Energy ((TOE)) and Uranex ((UNX)) are moving towards feasibility studies on potential projects.

Drilling activity also is continuing and according to RCR those companies likely to announce resource upgrades in coming months include Alliance, Berkeley, Black Range Minerals ((BLR)), Deep Yellow ((DYL)), Energy Metals, Extract Resources ((EXT)), Uranex and White Canyon.

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AGS BKY DYL EME ERA GGG PDN TOE