Robin Bromby From: The Australian January 19, 2011 12:22PM
SPOT uranium prices have climbed from around $US40 a pound in mid-2010 to $US68/lb this week.
BGF Equities is expecting the mineral to move in a band between $US60 and $US80 in 2011 - this they say is the level needed to encourage the supply response for which the nuclear industry is looking.
Below that level there will be a reluctance to make supply available as debt finance will be too difficult and equity funding will be scarce, writes senior analyst Warwick Grigor (who spent much of his Christmas break compiling the 44-page update on the sector and the 29 companies with JORC-compliant resources).
His picks are A-Cap Resources which should have a re-rating after it releases its definitive feasibility report this year on what is a very large resource, Peninsula Energy and its project which will have early production along with low operating and capital costs, Extract Resources which Grigor describes as best new uranium discovery and will become one of the best mines in the world, and Uranium SA which he says has excellent logistics and location in South Australia.
Some of the factors that are favouring a higher uranium price include:
* Possible disruptions to supply. For example, terrorist activity in Niger, Russian influence over supplies from Central Asia and its ability to use uranium as an economic weapon. What is more, the Russians generally are becoming more aggressive in the uranium space - securing control of Canadas UraniumOne, bidding for Mantra Resources and seeking to gain control of Berkeley Resources and its Spanish projects.
* China increasing its supply lines for uranium by acquiring stakes in companies abroad, negotiating joint ventures or acquisitions in Africa, Australia and Central Asia, and buying uranium in the open market and entering long-term contracts. If China, as expected, lifts its target from 5 per cent to 7 per cent for the nuclear component of its generating capacity by 2020, this would require another 7000 tonnes a year of uranium. BGF points out that present mine supply is just 60,000 tonnes a year.
The Chinese and Russians are competing for dominating strategic interests, writes Grigor.
BGF also does some useful break-downs of comparative analysis. For example, in the mine life table, A-Cap and Aura Energy head the list with 30-year mine life forecasts. When it comes to lowest cash costs, top is Greenland Minerals & Energy at US$20/lb. Highest grade resource is headed by Energy Resources of Australia and Alliance Resources, while the earliest new developers are Peninsula followed by Curnamona Energy.
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