TORONTO - The Energy Report: Why is the uranium market still down more than a year after theFukushima accident? Edward Sterck: While the uranium price is lower than it was immediately prior toFukushima, it's important to remember that it is at a higher levelthan we saw in mid-2010, which was only six months beforeFukushima. At that time, the uranium price was in the mid- tolow-$40s, and we're now in the mid- to low $50s. From thatperspective, I think the market is looking more robust than it didin 2010 despite the impact of Fukushima. Uranium prices appear to have established a base in the mid- tolow-$50s, but are now drifting along without any particularinclination to head higher. |
The main things keeping a brake onuranium prices are the current supply-demand balance and also someresidual uncertainty regarding Japanese reactor restarts and theissuance of new reactor licenses in China, which were suspendedafter the Fukushima accident. I think we could see some positivenews on both fronts in the not-too-distant future. It looks increasingly likely that Japan will begin to restartreactors. Local opposition to reactor restarts was overcome lastweek, and the government appears to be getting closer to a definiterestart decision, although the exact timeframe remains unknown.
In China, some nuclear regulators have come out publicly over thecourse of the last few months, saying that they will begin to issuenew reactor licenses again, potentially as early as June. We couldpossibly see those licenses issued fairly shortly. In addition, atthe beginning of June, the Chinese cabinet reportedly reconfirmedthe country's commitment to its nuclear program, although exactdetails are yet to be released. In summary, Japan and China's unfolding nuclear policies arepotential catalysts we may see in the near future.
These twoshort-term catalysts may not necessarily result in an increase inthe uranium price, but I view them as being potentially positivefor uranium stocks. Such events may derisk the outlook for thenuclear industry in the investment community, and therefore foruranium demand. This could draw capital back into uranium stocksand potentially result in a rerating of the market valuationmultiples applied to them. TER: Could a catalyst like the end of the reprocessing program inRussia turn the prices up again? ES: The downblending of Russia's highly enriched uranium, derived fromdecommissioned Russian nuclear weapons, ends at the end of 2013.The so-called Megatons to Megawatts program currently produces theequivalent of about 23 million pounds (Mlb) per year.
Although it'spossible Russia may continue to downblend some material forinternal purposes or sell its reactor technology to third-partycountries, the resulting production will be greatly reduced. Evenin 2013, the last year of the current deal, the quantity ofmaterial available to the market is expected be somewhat lower, ataround 16 Mlb. However, the impact of that is somewhat difficult toascertain with absolute certainty. The program's output does represent a fairly large part of themarket-around 12% of annual uranium demand.
As such, one wouldexpect some price appreciation after that material is no longeravailable to utilities. However, when you look at the procurementprocess for nuclear fuel, the utilities typically look at supplylevels 18+ months ahead. So we're actually already coming into thetimeframe where the Russian material is all spoken for, and theutilities should need additional sources of material from 2014onward. But we haven't really seen a huge price movement to reflectany supply-demand shortfall there.
It's probably fair to assume that the increase in production fromvarious parts of the world, particularly Kazakhstan, has beensufficient to offset the Russian material, at least for the timebeing, although we could see a supply-demand deficit opening up inthe years after 2014. TER: Given what you've said about China and Japan, will things pick upin the market over the summer? Or is it going to take a littlelonger than that to bounce back? ES: The summer is traditionally a very quiet time in the nuclearspace, as it is in capital markets in general. It's possible wecould see some movement toward the end of the summer, but I thinkthe world is still somewhat fixated on the uncertainty surroundingthe Eurozone and the broader macroeconomic impact that anycontinued problems with the Eurozone might have. Until those areresolved, it's very difficult to make absolute calls on these sortsof things. TER: Quite a few of the uranium stocks are down right now.
Is thisgoing to make them ripe for acquisitions? ES: I think it's possible we could see a period of consolidation.There have been some transactions over the last year or so. TER: Thank you for your time, Ed. Edward Sterck covers uranium, diamond and platinum group metal mining companiesfor BMO Capital Markets. He joined BMO in 2007, prior to which hewas a mining analyst at Hargreave Hale. Before working in miningresearch, he spent more than four years trading government bondfutures on a proprietary basis.
Sterck holds a Bachelor of Sciencein geology with honors from the Royal School of Mines, ImperialCollege London. Article published courtesy of The Energy Report - SUBSCRIBE to Mineweb.com's free daily newsletter now.
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