Yellowcake fever to heat up By Ben Sharples December 21, 2006 12:54pm
HOTTER days and drier winter months has pushed climate change to the forefront of the political and social agenda, with the quest for cleaner energy heralding a renaissance for the once unfashionable uranium.
Earlier this year, UK-brokerage Hargreave Hale released a report titled Too Hot to Handle or Just Warming Up that stated nuclear energy was the only credible base load for electricity with a proven track record that can compete, economically and environmentally, with fossil fuels.
"The case for nuclear energy is strengthening day by day,'' Hargreave Hale said.
The drivers for nuclear energy growth are well documented - they include increasing global electricity demand and global warming concerns, and point towards an increasing demand for nuclear energy and therefore uranium.
The demand for uranium is also expected to be driven by the proposed construction of 178 new nuclear reactors, a 40 per cent increase on the current global fleet of 441.
Hargreave Hale said the lack of investment in the uranium industry was resulting in an ever increasing power supply deficit and forecast demand for global electricity would double within the next 25 to 30 years.
Daiwa Securities analyst Mark Pervan said the uranium supply market was positioning itself for what is likely to be very strong conditions going forward.
"Uranium is gearing up for the next new wave of demand coming through in the next two to three years,'' Mr Pervan said.
"The real beauty on the supply side is for every one tonne of highly enriched uranium (HEU) that is lost or reduced, you have to replace it with ten tonnes of lowly enriched uranium (LEU) or mined uranium.
"There is a big multiplier effect in there, this is why there is going to be a big demand for mines and new supply.''
Currently, mine production accounts for about 60 per cent of the total nuclear reactor requirements, with the balance coming from secondary sources, such as government and commercial inventories.
Many companies are seizing the moment and dusting off their once unfashionable uranium assets to promote or spin-off into pure yellowcake plays.
This year, over 11 uranium focused companies have hit the boards of the Australian Stock Exchange including Toro Energy Ltd, U3O8 Ltd, Uranium King Ltd and the James Packer-backed Wildhorse Energy Ltd - while countless others have added yellowcake to their commodity mix.
Two years ago there was less than 20 companies with a combined market capitalisation of $US5 billion dabbling in the yellowcake game - today there are over 200 uranium hopefuls, according to Hargreave Hale.
On the political front the uranium debate has featured prominently over the past year and is likely to retain that momentum into 2007.
The Federal Government has taken steps to investigate the viability of nuclear energy in Australia, releasing a draft report into the practice which noted the nuclear option could be practical in the next 10 - 15 years.
In November, Treasurer Peter Costello said Australia was prepared to export uranium to emerging nations like India and China, while more recently, Labor leader Kevin Rudd said Labor's no new uranium mines policy needed modernising.
"The Labor party currently has a very restrictive stance on uranium mining and even though the Liberal party is in power, at the state level it is all run by the Labor governments,'' Mr Pervan said.
"So whatever Labor's stance is at the federal level it will have some impact on how the state governments act going forward.''
Not all have caught the yellowcake bug, however, with West Australian premier Alan Carpenter and Queensland premier Peter Beattie taking very public anti-uranium mining stances.
Politics aside the increasing demand is also having a buoyant affect on the spot price of uranium, which is currently hovering around $US65.50 per pound, having added over $US20 over the past 12 months.
Resource Capital Research analyst John Wilson ongoing supply concerns were going to have a positive impact on the spot price with some analysts forecasting yellowcake could hit $US100 a pound in 2007.
"I think the spot price is going to keep going up ... the market indicators are it is going to keep rising,'' he said. "There are concerns there about future supply.''
Those concerns hit home after a flood at Cameco's Cigar Lake mine in Canada delayed a potential 2008 start-up for the operation, which is pegged to produce about 18 million pounds or 10 per cent of global supply when it comes online. The uranium price jumped close to $US8.00 following the incident.
On the corporate front, the uranium sector has seen a swag of consolidation with Canadian outfits Mega Uranium Ltd and Denison Mines Corp swooping in and acquiring a number of Australian-listed companies.
Australia's Paladin Resources Ltd has also played a hand, swallowing junior Valhalla Uranium Ltd.
Mr Wilson expected the consolidation phase to continue into the new year with companies holding advanced exploration or near term development stage projects likely to draw the attention of corporate predators.
"Likely acquirers are going to be companies like Paladin or Denison that have been active this year already, they have the expertise and the capabilities to manage and develop the mines,'' Mr Wilson said.
"There is quite a long pipeline of companies that are moving into that category, advanced exploration or early stage development and those are the sort of companies that are going to be prime targets.''
Near term, there are a number of projects expected to come online including Paladin Resources' Langer Heinrich project in Namibia and sxr Uranium One's large Dominion project in South Africa.
While uranium mining in Australia is currently restricted, Mr Pervan said it looked inevitable there would be an increase given Australia holds close to 40 per cent of the world's known yellowcake reserves.
Uranium mining in Australia is currently restricted to three operations and include BHP Billiton's Olympic Dam and Heathgate Resources' Beverley mine in South Australia, and Energy Resources of Australia Ltd's (ERA) Ranger mine in the Northern Territory.
"When you are seeing the demand dynamics evolving it is just natural that we are going to be the first place people are going to come to get this stuff,'' Mr Pervan said.
"It seems inevitable when you look at the global reserves, we sit here with a lion share of the worlds known reserves.
"The first movers or the first beneficiaries are going to be the big existing players of BHP and ERA, and then it'll increase from there.''
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