The Australian Financial Review PRINT EDITION: 07 May 2011 Angela Macdonald-Smith
Almost two months after the earthquake and tsunami that triggered the Fukushima nuclear catastrophe in Japan, uranium equity prices remain sharply lower across the board and price forecasts for uranium oxide have been pulled back for at least the next two years.
But signals from merger and acquisition transactions under way in the market confirm continued keen interest in quality uranium assets by nuclear power users, who are using the slump in equity values to snap up resources more cheaply.
China Guangdong Nuclear Power last week announced a cut of a modest 7 per cent in its potential offer for the dominant shareholder in Extract Resources, owner of the huge Husab uranium deposit in Namibia.
The reduction, which is being disputed by a regulator, compares with a 23 per cent drop in the stock of the company, Kalahari Minerals, since March 11.
Similarly, Russia's ARMZ last month trimmed 12 per cent from its offer for fellow African uranium explorer Mantra Resources on the back of the disaster at the Fukushima Daiichi reactor.
"It is hardly the armageddon scenario that some would have had us believe post March 11," one analyst said. "It's a clear indication that uranium still has a future."
Husab, set to be one of the world's biggest three uranium producers, will produce 15 million pounds a year of uranium oxide at a cost of about $US30 a pound when it starts up in early 2014.
"What these top-quality deposits have to offer is still very attractive to the big consumers," Southern Cross Equities mining analyst Peter Chapman said.
Companies with lower-grade deposits would be harder hit, said Bob Cleary, chairman of explorer Crossland Uranium Mines, which said on Friday it was putting its uranium exploration work in the Northern Territory on hold to focus on its rare earths resources.
Mr Cleary, a former chief executive of Rio Tinto-controlled uranium producer Energy Resources of Australia, expects uranium oxide prices to languish at $US50 to $US55 a pound for the next 12 to 18 months, well down from over $US70 in January.
"It will be the ones that were hoping to get into the market that will suffer the most, along with the explorers who will have to just do a minimal amount with the funds that they have until the climate is right to raise some more money to be more active," he said.
The drop in spot prices for uranium oxide below the $US70 a pound threshold widely regarded as the trigger point for the development of new mines has again put question marks over some project plans.
"Junior explorers are now going to find it much more difficult to raise the funds they need to stay active in the field," Mr Cleary said.
"Also, those that were approaching the stage where they have done their feasibility study and are about to start selling the development proposal to investors - whether they be banks or lenders - their fundamentals would have been based on a price of $US70 or thereabouts, so they will now have to cool their heels for a while."
JPMorgan lowered its uranium price forecasts last week for the next two years to $US62 a pound, including a 19 per cent cut in its 2011 forecast, citing lower demand following the Japan quake, which has sparked a reassessment of nuclear power expansion plans in several countries.
UBS has identified the 30 oldest reactors worldwide that could be at risk of closure, but continues to forecast strong growth in nuclear power in developing markets such as China.
Southern Cross has reduced its price assumptions to about $US60 a pound for the next 12 months, down from $US65 to $US70 before the partial meltdown at the Fukushima Daiichi plant.
"That does reflect some shift which I don't really think you can ignore given the magnitude of the Fukushima event," Mr Chapman said.
"But underlying that we're still very positive on the outlook for the sector, for pricing and for demand, and also just for the growth of the nuclear power sector."
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