A significant upgrade to China's stated nuclear power capacity plans have pushed uranium prices higher and seen listed uranium stocks surge
Author: Barry Sergeant Posted: Wednesday , 10 Nov 2010
JOHANNESBURG - Listed specialist uranium stocks - of which more than 100 can be identified around the world - have been on a belter over the past week or so. Spot uranium prices have been soaring, to levels not seen for ages.
The main reason - for investors who missed the news, which has been identified by specialist analysts at, among others, RBC Capital Markets - is China's announcement of a substantial upgrade to its nuclear power capacity by 2020.
RBCCM puts it so: "The recent news that China has increased its target for nuclear power for 2020 to 112 GW (from 70 GW), well above our previous estimate of 86 GW, has, in our view, changed the market dynamics".
The analysts have increased 2010 and 2011 spot price forecasts to USD 46/lb and USD 65/lb, from USD 44/lb and USD 55/lb, respectively. Forecasts for 2012 to 2018 remain between USD 75.00/lb and USD 80.00/lb, a range with RBCCM believes "is necessary to incentivise new mine development to fill the growing supply-demand deficit that we have forecast".
Spot uranium prices spiked heavily around mid-2007, pushing to well over the USD 130.00/lb mark. After that prices went very soggy indeed; investors steadily fled from listed uranium stocks in general. Canada's Cameco, by far the biggest listed uranium stock, and the world's leading miner and producer of uranium, experienced a stock price fall from around USD 55.00 a share (in 20070 to less than USD 15.00 a share in the early parts of 2009.
This year, the stock price has nearly doubled, to USD 36.81 a share. In the past month alone, the stock has jumped from below USD 30.00 a share to as much as USD 38.56 a share. Australia-listed Extract Resources, which arguably made the most exciting uranium discovery of the past decade, peaked at nearly AUD 11.00 a share in 2009, before touching AUD 6.00 a share just a month ago. In just weeks, the stock price has zoomed more than 40% to AUD 8.69 a share.
In March this year, spot uranium prices traded as low as USD 40.00/lb, nearly USD 100.00/lb less than the peaks seen in 2007. Prices have soared, with current quotes around USD 58.50/lb.
Discussing the recent news out of China, RBCCM notes that it had been forecasting "a strong increase in spot and term uranium prices for some time". But RBCCM had previously believed that "a significant increase in prices was unlikely before late 2011".
In a major report published in September, RBCCM said it believed that 2007 "was the peak year for uranium prices. Looking to the future, we think the uranium market will require substantial new sources of uranium to fuel the projected growth in the global nuclear reactor fleet.
"To stimulate this supply, we estimate that the uranium price will need to increase to at least USD 75.00/lb. We believe that the current spot price [then around USD 45.00/lb] reflects the current spot supply-demand imbalance (excess supplies and weak demand in this case). We do not think that either the term price or the spot price reflect the long-term supply-demand fundamentals".
RBCCM anticipated uranium demand growing by an average of 4.2% a year during the next 20 years, but weighted to the 2018-2025 timeframe: "The increase in demand is driven mostly by China because we expect that it will lead the world in new reactor builds in the next two decades". That dynamic has now been strengthened.
Listed uranium stocks have been among the worst performing mining stocks globally, which would hardly be a surprise given the kind of price action for most other minerals. Especially in smaller listed uranium stocks, speculators have now returned with a vengeance.
On Wednesday, Australia-listed Nimrodel (market value: USD 9m) soared by 62%. In line with a number of other explorers, the little company has seemingly long dropped "uranium" from its vocabulary, preferring to focus on "base metals and gold".
Canada-listed Bitterroot Resources (market value: USD 9m) saw its stock price jump by 44% on Tuesday. The company, by now, has more apparent imaging in other minerals, including base metals and gold, but uranium is still mentioned in its Upper Peninsular of Michigan projects. How many other companies are busy brushing off the dust from mothballed specialised uranium targets?
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