if it's good enoug for WARWICK GRIGOR it should be alrightALAN...

if it's good enoug for WARWICK GRIGOR it should be alright

ALAN KOHLER: In another big week in the booming uranium sector, the besieged board of Queensland explorer Summit lowered the drawbridge and recommended shareholders accept a $123 billion offer from Paladin Resources, while the new boss at one of the world's largest producers, ERA’s Chris Salisbury, warned that the whole yellowcake boom looked overcooked to him. For his take, I spoke to one of the most highly regarded analysts of the sector, Warwick Grigor of Far East Capital.

Well Warwick, perhaps you can just set the scene for us a bit, what's the uranium market been doing this year?

WARWICK GRIGOR: This year it's just been going up and up. It's part of a three, four-year bull market that we've been experiencing. Uranium has actually come from down around about $US10 a pound. A couple of months ago, it was $95 a pound and then it's suddenly jumped to $US113 a pound about a week ago.

ALAN KOHLER: And what's been driving that?

WARWICK GRIGOR: Basically, there's no uranium around. There's a major shortfall. The anticipated needs for uranium over the next five years can only be satisfied as to 60 per cent by mine production. The rest of the uranium is coming from reducing stockpiles, converting weapons-grade uranium back to power station uranium, but basically we've gone through a period of probably 20, 30 years where there's been no investment in the uranium sector. There's been no exploration. It's been a total departure from the industry and that’s left us in a critically short position today.

ALAN KOHLER: The chief executive of ERA, Chris Salisbury, says the market in uranium is looking overheated. Do you agree with that?

WARWICK GRIGOR: Well, it's certainly very strong. Whether it's overheated, there's nothing to suggest the uranium price is going to go any lower at this point in time. As far as ERA is concerned, I suppose they're not getting any benefit from these high uranium prices because they've got long-term contracts and they're getting substantially less so, as far as ERA is concerned, the way they look at it, I’m sure they'd say it would be overheated.

ALAN KOHLER: Well, how high do you think the price can go?

WARWICK GRIGOR: It could quite conceivably get to 150 a pound before the end of this year. At that level, it does start to look a bit toppy and there would be enormous profit margins to be made by producers that could come on stream, so if it peaks at 150, I would expect - what the managing director of ERA said was that in three years’ time, you would expect it to be somewhat softer than it is today and that is reasonable to expect if we do get a supplier response but there's not going to be much of a supplier response for at least two to three years and so the uranium price will stay strong for that period.

ALAN KOHLER: With the uranium price where it is now and what you think it's going to do in the future, do you think that uranium stocks generally are expensive or cheap?

WARWICK GRIGOR: You need to look at the difference between potential producers, which can actually cash in on the high prices and exploration stocks. We're seeing a lot of unsophisticated buying of uranium exploration stocks and a lot of them have got success already factored into their share price. You've got a number of companies that are selling for $150 million to $200 million and they don't have one pound of resources. Well, those stocks have to deliver or they'll come down a long way. On the other side of the equation, you've got a lot of emerging companies which, if you have a look at what they could earn, what their cash flows could generate at these prices, they're still cheap. So the market needs to become a bit more sophisticated and look for value and be careful about hype on the exploration side.

ALAN KOHLER: And what are your top three stocks?

WARWICK GRIGOR: Looking at the potential producer category, I think that a company like Uranium King, which is looking at bringing on stream one or two mines in the USA - very good value; Contact Resources has got a high-grade ore body in Peru which could well be a producer; and Monero Mining, a company in which I disclose a vested interest in as a director, I think that's got a lot of very under-priced uranium assets in the Kirgiz Republic and remember, that's a major uranium producing part of the world. So they're my top three.

ALAN KOHLER: Thanks very much for joining us, Warwick.

WARWICK GRIGOR: Pleasure, Alan.


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VIDEO:

It has been another big week in the booming uranium sector. The besieged board of Queensland explorer Summit has recommended shareholders accept a $123 billion takeover offer from Paladin Resources, while the new boss at one of the world's largest producers, ERA, warned the whole yellowcake boom looked overcooked. Alan Kohler spoke to one of the most highly regarded analysts of the sector, Warwick Grigor of Far East Capital.
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