It’s been the world’s ultimate bear commodity. But there are...

It’s been the world’s ultimate bear commodity. But there are increasing signs that uranium might finally be about to turn.
The price of uranium, which has now been in the doldrums for the best part of six years, has shown its first signs of life in recent weeks while some smart money is starting to trickle into uranium stocks.
And Donald Trump, who has already inspired a rally in several other commodities since his election, has done his part for uranium — if not exactly world peace — by calling for the US to “greatly strengthen and expand” its nuclear weapons capability.
The spot price of uranium has been in near free-fall since the Fukushima nuclear disaster of March 2011, declining from more than $US60 a pound to just $US17.75/lb earlier this month. About three-quarters of the world’s uranium mines would be losing money at current spot prices, leaving the likes of Australian-listed Paladin Energy — operator of the Langer Heinrich uranium mine in Namibia — battling to meet debts and stay afloat.
But the length and impact of the downturn and the commitment of China to tackling its pollution issues have prompted some to call the bottom of the uranium market, even though Japan continues to dawdle towards a restart of its nuclear power capability.
Those who have been waiting for the turnaround finally had reason to believe it might actually be happening earlier this month, when in the space of eight sessions the price of yellowcake bounced from $US17.75/lb to $US21.25/lb. That equated to a 19.7 per cent rise, albeit off an extraordinarily low base.
Brandon Munro, the managing director of Bannerman Resources, says that while the lift meant the uranium price is now only just a little bit better than awful, it nonetheless sends a good signal to the market.
“The reason it’s significant is we’ve had a number of speculators, investors, commentators and so on who have been looking for signs of the uranium bottom,” he tells The Australian.
“It feels to me there’s almost universal agreement that uranium can’t go much lower, but equally a lot of the players want to make sure it won’t go lower. So picking a bottom of the market is significant for a number of equity investors.”
Bannerman, which owns the advanced Etango uranium project in Namibia, has itself seen examples of money wanting to take a bet on the longer-term outlook for uranium.
It set out on an equity raising earlier this year chasing $3m in fresh capital and hoping it might be able to sneak $4m. Instead, it closed the offer after collecting $5m. Then, earlier this month, it helped cross a line of 25 million Bannerman shares representing more than 3 per cent of the company to the new microcap fund of the $16bn Industry Funds Management group.
Similarly, back in October, Paladin founder and industry stalwart John Borshoff made his return to uranium when he took over the managing director’s role at exploration play Deep Yellow. His return was backed by noted North American fund Sprott Global Resource Investments taking a 13 per cent stake in the company. Sprott had been an early supporter of Paladin under Borshoff, making a fortune as it soared from penny dreadful to poster child of the 2008 uranium boom, and Borshoff says Sprott and other big investors are looking for similar returns from today’s depressed sector.
“There’s a huge number of people out of North America who want to play in this,” Borshoff says.
“They are all anticipating that there’s a play here, and they’re all anticipating this is something that will take time to develop, but they’ll put some money away and hope for a 10 to 15 bagger. That’s what they’re in for.”
Somewhat conversely, however, Borshoff says he is in no rush to see the uranium price rebound.
Instead, he wants to use the current market to build a portfolio of assets within Deep Yellow that will make the company the pick of the uranium juniors when the market finally does improve materially.
“I’m not there praying every night at the shrine of whatever god ... to push up the uranium price,” he says.
“If the uranium price went up today I’d be very disappointed, even though we’d do well with what we’ve got. I know what we can do, but it’s nowhere near the leverage we can get if it holds out.”
Berkeley Energia, which is developing the Salamanca uranium project in western Spain, has also seen strong demand for its shares despite the ongoing pain in uranium spot prices.
The company has climbed from a low of 42c a share in February to a recent high of 90c, and it now has a market cap well in excess of former market darling Paladin.
Paladin continues to feel the pressure of its $US212m ($294m) debt burden, which is due for repayment at the end of April. EIS Capital Management executive director John Robertson is among those who believe uranium could be turning.
“It’s probably the last cab off the rank in a sense, but last week showed the first inkling of a positive sign there.”
It’s inevitable that there will be a pinch in the uranium market at some point in the years ahead, he says, given China’s commitments to push ahead with construction of a nuclear power capability as a means of tackling its pollution problems.
“From a fundamentals standpoint it’s pretty clear that demand for uranium is going to rise given what we know of nuclear power construction activity over the next 10 years,” he says.
While the timing of that recovery is uncertain, at least investors can take comfort from knowing that uranium has to be closer to the bottom of the cycle than many other commodities.
“It might be a little while before there’s a noticeable improvement in the fundamentals of the uranium market but I think that the downside risk from an equity point of view has been greatly reduced,” he says.
“To take an extreme example, do I buy lithium at the minute or uranium? The risk-reward is obviously on the side of uranium.”
The other unknown is what impact Trump’s recent sabre-rattling could have on the nuclear warheads industry.
Trump last week used his Twitter account to call for the US to strengthen and expand its nuclear arsenal “until such time as the world comes to its senses regarding nukes”.
The same day saw Russian President Vladimir Putin say that Russia “should fortify its military nuclear potential and develop missiles that can penetrate any missile defence system”.
While both the US and Russia have existing stockpiles of weapons-grade plutonium that they could divert into an expansion of their nuclear weapon capability, the real wildcard could be the impact Trump’s policy-by-Twitter has on China.
China lags well behind the US and Russia in terms of nuclear warheads, with around 700 missiles compared to the estimated 7000 or so held by its two rivals, and observers believe the comments from Trump and Putin could prompt Beijing to crank up its nuclear weapons program and develop a nuclear-capable submarine fleet.
China is not believed to have the same stockpiles of weapons-grade plutonium as the US and Russia, so it would have to rely on existing uranium mines.