ft: uranium shares look safer and safer

Financial Times
Uranium: Glow with it
March 3, 2014

The reaction is easy to understand. The price of uranium for use in nuclear reactors - U3O8 - has halved over the past three years, to $35 a pound. After the Fukushima disaster in 2011, any previous positive charge from this metal quickly turned negative.

Uranium prices have dropped so low that about a quarter of the world's production is now unprofitable. Paladin Resources, for example, announced this month that it would curtail production at its Kayelekera mine in Malawi, thought to have cash costs of around $50 a pound. It's a small mine, but such closures hint at the stress miners feel. RBC believes a long-term price of $80 is required to encourage more uranium supply; meanwhile, 2018 forward prices hover near $45.

Now the current Japanese government wants to restart some or all of Japan's nuclear reactors; something the public fears, but the country may need. The nuclear sector had supplied more than a quarter of Japan's electricity; suddenly it fell to zero, putting acute pressure on Japan's trade account as it imports more fossil fuel. Japan's uranium inventory sits at 100m tonnes and will swell by about a fifth this year if its nuclear generators remain idle.

The mere possibility that this excess supply might not be all sold back into the world market has cheered investors, and put a new glow on uranium miners in recent months. Shares in Canada's Cameco, the largest listed U3O8 miner, and one of the world's lowest cost producers, have rallied 35 per cent in six months. One proxy for the commodity, Uranium Participation Corporation - which invests directly in U3O8 - is up less than a quarter. Cameco's shares don't look like a bargain at 30 times forward earnings, but that ratio is based on an earnings estimate 20 per cent below even last year's level.

Uranium shares are looking safer and safer.

http://on.ft.com/1gNhYMA