While a rising tide of investment earlier in the year lifted prices for most uranium companies, the recent fall, largely in reaction to volatile spot prices, means that investors now need to become far more discerning and look at which projects will actually be viable. Securing a long-term offtake agreement is critical, as only 10 per cent of uranium is traded on the spot market.
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Key criteria include project resource and grade, infrastructure (water and power) and jurisdiction. Political uncertainty in Australia, Canada and Kazakhstan means that with predicted supply shortfalls in 2012/13, many end-users are looking to secure geographic diversity of supply now.
In Namibia, our favoured jurisdiction, Korean state-run power company Kepco is planning to acquire a mine next year, possibly with Rio Tinto. Extract Resources' Rossing South project is a potential target, being next door to Rio's Rossing mine and with Rio controlling 16 per cent of Extract. This is by no means certain, though, since Kalahari Minerals and Polo Resources also significant shareholders with respective stakes of 41 per cent and 10 per cent..
Areva and Nuclear Power Corp of India may sign an agreement next year, which could include a stake in Areva's Trekkopje mine in Namibia. Areva could also increase production at Trekkopje using West Australian Metal's Marencia as a satellite project. However, Areva is also currently constructing the $1.4bn (£840m) Imouraren mine in Niger and has strategic alliances with other companies in Africa, including Forte Energy where it is a major shareholder.
Areva may do similar deals in Namibia and elsewhere in Africa with Russian state-run ARMZ Uranium Holding. However, ARMZ is also in discussion with Cameco about projects in Africa and Australia after their joint venture in Russia stalled due to the strategic investment laws.
However, many existing projects elsewhere are too small to stand alone and we expect a wave of consolidation to hit the junior sector as licence areas are combined. Recent transactions such as those involving Uranium Resources in Tanzania and UrAmerica in Argentina indicate this has already begun. We expect it to continue, especially in Australia, Southern Africa and South America as smaller companies run out of cash and realise they need to merge to survive. ABOUT THE AUTHOR...
Mark Heyhoe is an analyst at broker Hanson Westhouse.
WME Price at posting:
13.0¢ Sentiment: Buy Disclosure: Held
