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Overheated uranium plays spark warnings
27th December 2006, 9:45 WST

Analysts have warned investors about the risks of getting caught up in the hype surrounding uranium amid expectations that the radioactive metal will continue a blistering market run next year.

Brokers and analysts fear that investors face big losses by blindly jumping on to junior uranium plays that are going to the market with untested uranium sampling results and enjoying over-inflated market valuations.

A steady diet of trace uranium discoveries, record yellowcake prices and anticipated supply constraints has bulked up the market valuations of most uranium juniors to a hefty premium to their underlying net assets, with many uranium juniors packing on an average of 143 per cent in the past 12 months.

Far East Capital analyst Warwick Grigor believes investors are overreacting to uranium sampling results that do not warrant the enthusiasm and in some cases are misleading.

In his December uranium sector analysis report, Mr Grigor warned: "In most cases it is the trace of uranium that is exciting punters, and companies are reporting these traces as if they amount to a discovery.

"This is very misleading. Most of these companies will find that uranium has simply passed on by and the excitement has been premature."

Mr Grigor said it was not good enough for companies to just have a radiometric anomaly covering a paleochannel, companies needed to find out where the transport had stopped and if a deposition has taken place.

Few grassroot explorers with tenements in WA managed to rate above average in Mr Grigor’s sector poll, with Aura Energy, Aurora Minerals, Encounter Resources, Korab Resources, Scimitar Resources and U3O8 just scra ping in with a fair rating.

Northern Uranium and Thundelarra Exploration were among the handful of junior explorers described as possessing good quality assets.

Daiwa Securities analyst Mark Pervan said 95 per cent of listed uranium juniors would never see the light of day from a production point of view because they were too small, did not have mining permits and the regulatory environment was too restrictive.

Analysts have warned that many investors were overly excited about uranium and not recognising there were long lead times involved in getting uranium production up and running, resulting in the stocks being priced as if mining and production were already occurring.

Over the past six months the uranium price has climbed 64 per cent, driven primarily by the anticipated energy appetite from the proposed construction of 178 new nuclear reactors, which represents a 40 per cent increase on current global nuclear infrastructure.

Last week the spot uranium price soared $US6.50 a pound to a new high of $US72/lb, marking the single biggest increase since price publishing began in 1968.

Resource Capital Research analyst John Wilson said that companies with advanced projects, such as Uranex, PepinNini Minerals, Berkeley Resources, Wildhorse Energy and Energy Metals were most likely to make rapid gains next year.

Mr Wilson forecasts the uranium price to be $US90/lb by mid 2007 and $US115/lb by September 2008.

Hartleys resources analyst Andrew Muir said most uranium juniors were years away from gaining any upside from higher uranium prices.

TRACEY COOK