Tuesday, July 15, 2008

Uranium looking up here

Increased corporate action in the global uranium sector, and indications that spot prices may have troughed, could signal the end of a vicious bear market, according to some top investment ideas coming off specialised trading desks on both sides of the Atlantic.

There are rumours that specialist physical uranium trade entities Ux Consulting and TradeTech will likely report spot uranium prices rising to around USD 64/lb in latest weekly fixings, from multi-year lows of USD 58/lb reported last month, a level well less than half the peak USD 138/lb reported in June 2007.

On the corporate front, London-listed Nufcor Uranium is known to be involved in the marketing of a possible Toronto listing for its uranium investment vehicle. This follows last week's news that mining major Rio Tinto, itself a significant uranium producer, had reached agreement to sell its unlisted Kintyre uranium project in Western Australia to a joint venture consortium comprising subsidiaries of Cameco, the world's biggest producer, and Mitsubishi Development, for USD $495m.

This has left more than 100 listed explorer and developer uranium stocks in the cold for the meantime, but the Kintyre deal was the biggest in the global uranium sector since the August 2007 acquisition by Areva, the world's No 3 uranium miner, of Uramin, for USD 2.5bn.

Analysis of portfolio flows over the past month or so shows that investors have increasingly been switching selected funds into listed uranium stocks, suggesting that sentiment towards the beleaguered sector may have turned. Just a month ago, specialist analysts at RBC Capital Markets warned that the-then spot market price level for uranium "will likely have far reaching implications if it remains at such low levels for too long.

"Most importantly" RBCCM continued, "in our view, will be disinterested equity markets that might cease funding uranium exploration and development. We believe that the absence of equity market participation in the uranium industry would constrain the ability of uranium supply to meet the growing demand, which, in turn, could threaten the ability of global utilities' new reactor build programs".

According to a London-based sales-trader, speaking on Monday, uranium term (contract) prices have remained at USD 85 to 90/lb for most uranium volumes, for many months in a row. He added that "an oil price approaching USD 150 a barrel on the threat of an Israeli strike on Iran's nuclear facilities demands a re-rating of the entire energy complex and uranium has been unfashionable for a year now".

World Nuclear News