Excellent paper Understand uranium prospects post Fukushima;...

Excellent paper

Understand uranium prospects post Fukushima; including our recovery strategy to play the sector. Free access here: try the link below

http://www.edisoninvestmentresearch.com/downloads/uranium_sector_report_book.pdf

Making A Case For Uranium
By Edison | Commodities | Feb 26, 2014 12:32PM GMT

Life after Fukushima

While the uranium sector is still recovering from the Fukushima-induced demand shock, the supply-demand balance is gradually improving supported by production cuts and the HEU expiration. We suggest this creates a base for the spot uranium price to recover from current lows. The potential turnaround in uranium prices should be supportive of uranium equities. As such, we suggest a strategy to play the uranium sector through high-quality exploration companies and near-term producers that offer a low opex/capex entry to the market.

Tightening supply-demand balance

The Fukushima disaster in Japan has had a major impact on the industry, removing some 20Mlb U3O8 in consumption, or c 12% of annual global demand. Global uranium consumption has gradually recovered since then, reaching an estimated c 167Mlb U3O8 in 2013 and is set to grow further on the back of expanding nuclear generating capacity in China and elsewhere. The industry has swiftly responded to the demand shock by cutting production and deferring new projects, with the announced cutbacks totalling some 20-25Mlb. In addition, the end of the HEU (highly enriched uranium) agreement will further reduce supply by 24Mlb from 2014. Overall, we estimate that the ongoing adjustment of primary and secondary supply roughly doubles the impact from the demand contraction in Japan.

Calling the bottom of the uranium price cycle

Having reached a peak in 2007, uranium prices have undergone a downward correction followed by a modest recovery in 2011 only to resume declines on the back of the Fukushima accident. While the tightening supply-demand balance is seen as the key driver behind the uranium price, our analysis suggests that there is very little room for the spot uranium price to fall further as it appears to be close to the break-even price of the lowest cost production capacity. Another indication of the uranium sector potentially reaching the bottom of the current supply-demand and price cycle is the recent high level of M&A activity as companies take advantage of attractive market valuations. Given that global uranium demand continues to grow and the long-term supply overhang is being gradually absorbed by the market, we expect the spot uranium price to enjoy a gradual recovery from the current lows.

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http://www.edisoninvestmentresearch.com/downloads/uranium_sector_report_book.pdf