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Uranium Rumour Wanes

Commodities | May 24 2011

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

By Greg Peel

The week before last, a rumour ran around the spot uranium market suggesting that the US government's Portsmouth clean-up contractor Fluor-B&W had found a buyer for the full amount of uranium the Department of Energy intends to sell to cover the clean-up cost. Given the DOE was planning to sell 5.2mlbs of U3O8 equivalent gradually out to 2013, it seemed a bit unlikely.

But then again with the uranium price having been knocked down substantially in the wake of Fukushima, maybe the rumour wasn't so crazy after all. The market was thus prepared to back it, pushing the spot price up to US$57.00/lb on industry consultant TradeTech's indicator by the end of that week.

On the Friday however, Fluor-B&W denied the rumour. Yet the market was slow to accept the denial and early last week the buyers were still keen, TradeTech reports. Spot trades were transacted up to US$58.00/lb.

But alas, finally the market conceded the denial and the buyers ran away, leading TradeTech to adjust its price indicator back to US$56.00/lb or US$1 below the previous week's mark. Seven transactions were concluded in all totalling 900,000lbs of U3O8 equivalent.

The consultant's medium-term price indicator remains at US$59/lb and the long-term at US$68.

What has the analysts at BA-Merrill Lynch positive about the spot uranium story at present is the fact that while the spot price fell from US$73/lb to trade at US$50/lb after Fukushima, the long-term price only ticked down to US$68/lb from US$70/lb. While this small comparative move highlights the typically lack of volatility in uranium contract pricing, it also suggests the real end-users of uranium are not buying into suggestions the world will now reassess nuclear energy altogether. Instead, they continue to seek uranium supply on contract.

This suggests to Merrills that an eventual closing of the spot-term gap will be a result of the spot price trending upwards rather than the term price trending down. On that basis Merrills this week reiterated its Buy rating on Australian-listed Paladin Energy ((PDN)) after having adjusted for sales deferred due to the lower spot price.

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