CANTOR FITZGERALD, January 3 2014COMMODITY PRICE UPDATE2014 may...

CANTOR FITZGERALD, January 3 2014

COMMODITY PRICE UPDATE
2014 may be a tough year for gold as uranium steps into the spotlight

A TOUGH YEAR COMING FOR GOLD

We are cautious over the near to intermediate term on gold as the current economic climate is one of low inflation and likely tapering by the U.S. government – both of which are negative for gold. Combined with the strength of other investment classes and in the general equity market in particular many signs point to continued weakness for the price of gold. We further note that producers may return to price hedging programs to protect themselves, which would also provide downward pressure on gold. That being said, we continue to see US$1,200/oz as the marginal all-in cost of production for gold and over the long term this should be a major support level.

URANIUM: ON YOUR MARKS, GET SET...

We have long pointed to 2014 as the kick off year for uranium prices to return and for the commodity to retake its position in the spotlight. While uranium equitieshave shown some strength over the last quarter of 2013, we believe there is significant upside remaining as the spot price of US$34.50/lb is below the current marginal cost of production of US$40/lb and significantly below the minimum incentive price for future supply to match future uranium demand (US$70/lb). While uranium prices are currently low due to excess uranium inventories stemming from material earmarked for Japan’s 50 reactors not being consumed over the last three years, we believe prices are set for a violent move higher as Japan is set to restart some reactors this year (we forecast 12 to restart in 2014).

Moreover, despite the negative headlines of anti-uranium sentiment we continue to highlight that there are more reactors under construction, planned, and proposed now (556) than since before Fukushima (541) (exhibit 1).

Due to our detailed supply and demand forecast (exhibit 2), we forecast a significant and dramatic move in the price of uranium in the near term as the price corrects from below the marginal cost of production (exhibit 3). We see a supply deficit in two of the next five years followed by a large and unavoidable deficit beginning in 2019 as global demand outpaces global supply under the current price environment.

http://m.theglobeandmail.com/globe-investor/investment-ideas/research-reports/article16185622.ece/BINARY/20140103Commodity%20Price%20Update%20For%20Globe%20and%20Mail.pdf