Uranium, at 23-Year High, May Extend Gain on Supply (Update3) May 17 (Bloomberg) -- Uranium prices may extend gains after surging to a 23-year high last week as a new investment fund started buying the nuclear fuel and U.S. power producers try to rebuild dwindling stockpiles.
Uranium Participation Corp., which sold C$90 million ($79 million) of shares to raise cash to invest in uranium, began trading on the Toronto Stock Exchange May 11. It joins Portland, Oregon-based fund Adit Capital Management, which started buying uranium in December.
Wholesale uranium prices have more than doubled to $29 a pound, from $14 in January 2004, on expectations reactors being built in China, India and Russia will drain inventories. Higher prices may boost earnings at BHP Billiton, which has bid A$9.2 billion ($7 billion) for WMC Resources Ltd., owner of the world's biggest uranium deposit, and at Rio Tinto Group.
``Some U.S. utilities understand that there's no incremental supply out there and they've been aggressively adding to their inventories'' in the past month, said Bob Mitchell, who manages Adit and $200 million at Touchstone Investment Managers. The entrance of Uranium Participation into the market helped prices, he said.
Uranium for immediate delivery rose $5 to $29 a pound in the two weeks to May 11, the biggest two-week gain since January 1996, according to Metal Bulletin. That was the highest price since at least 1981, according to prices on the World Nuclear Association's Web site.
`Market Improving'
Buying WMC will give BHP Billiton, the world's biggest miner, control of Olympic Dam in South Australia, which holds more than a third of the world's known uranium. Melbourne-based WMC plans to spend more than A$4 billion on an expansion, which would triple uranium production, as well as increase gold and copper output.
``The acquisition of the world's largest uranium deposit immediately makes us a material player in this resource that is continuing to play an important role in the world's energy intensity,'' Chip Goodyear, Melbourne-based BHP's chief executive, said March 8.
Gains in uranium prices give ``considerable upside'' to BHP earnings after the takeover, Paul Xiradis, who helps manage $1.5 billion at Ausbil Dexia Ltd. in Sydney, said the next day.
London-based Rio Tinto, which controls the world's third- biggest uranium miner, Energy Resources of Australia Ltd., might buy more mines because the mineral's long-term future has improved, Chairman Paul Skinner said April 29. Energy Resources shares have more than doubled in the past 12 months.
Shares of BHP have surged 38 percent in the past year and Rio Tinto stock has gained 30 percent.
MIT
Commercial stockpiles of uranium dropped 50 percent between 1985 and 2003 because mine output couldn't keep up with demand, the Massachusetts Institute of Technology said in a September report. Mines produced about 55 percent of the 66,000 tons of uranium used in 2003, according to the World Nuclear Association.
Uranium prices may average $30 a pound next year, from a previous forecast of $27, Greg Barnes, an analyst at Canaccord Capital Inc., Canada's biggest independent brokerage, said in a May 3 report.
``The involvement of speculative funds and investment funds in the market,'' is helping raise prices faster than predicted said Barnes, who was ranked Canada's No. 2 mining and metals analyst in the past two years in the Brendan Wood survey of institutional investors. Purchases by U.S. utilities to rebuild inventories are also pushing prices higher, he said.
Increased Forecast
Canaccord increased its average spot uranium forecast for this year to $25.50 a pound from $23.50. Prices might average $35 a pound in 2007, Barnes said. The spot market, which makes up about 12 percent of uranium sales, sets a price reference for long- term contracts between miners and utilities.
China plans to build 27 plants to boost nuclear energy output fourfold by 2020, according to the World Nuclear Association. India aims to build up to 24 reactors, the WNA said on its Web site. Russia plans 24 reactors by 2020, more than doubling its nuclear power capacity.
National Bank Toronto-based analyst Ian Howat said May 14 that he expects contract prices of uranium, which are set monthly, to rise above $30 a pound when they are set in June, from $28.
Recent gains and a shortage of mine supply might push average prices higher than a forecast $30 a pound in 2007, UBS AG Sydney- based analysts Glyn Lawcock and Fleur Grose said in a May 13 report. UBS didn't change its forecast.
`Headed Higher'
``Uranium prices will be headed higher and even at $30 a pound there's next to nothing in incremental supply that will come to market'' to ease the shortage, Adit's Mitchell said. He declined to say how much uranium his fund held. In December, Mitchell said Adit had physical uranium valued at $26 million.
Shares of Saskatoon-based Cameco Corp., the world's biggest uranium miner, have more than doubled to C$47.72 in the past year as the miner was able to negotiate prices at a premium to market. Canaccord's Barnes said on May 3 he expects the stock to reach C$62.50 in the next 12 months, from a forecast of C$55.
``Under rapidly evolving contract terms, Cameco is locking in higher long-term prices that are leading market prices higher,'' Barnes said.
Uranium Participation, which is managed by Canadian uranium miner Denison Mines Inc., agreed to buy 1.85 million pounds, or 835 tons, of uranium at $27.87 a pound for a total of $52 million, the Toronto-based fund said in a May 10 statement.
Share Drop
Shares of Uranium Participation have fallen 6.8 percent to C$4.94 since they started trading on the exchange May 11 at C$5.30.
``Traders setting offer prices well above market and the very visible solicitation for 3 million pounds of uranium by the newly launched uranium commodity fund'' led to the recent price jump in uranium, H. Fraser Phillips, an analyst at RBC Capital Markets in Toronto, said in an May 3 report.
Adit's Mitchell said he was aware of only ``a couple'' of other funds which had bought small positions in physical uranium.
``The unique characteristic of uranium is that there is so little in the way of physical ownership by investors'' compared with other commodities, Mitchell said. ``The price advance of the material has actually accelerated even as other commodity prices generally decline as investors exit.''
To contact the reporter on this story: Matt Chambers in Melbourne at [email protected] Last Updated: May 17, 2005 07:00 EDT
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