JOHANNESBURG (miningweekly.com) - While uranium traders remain cautious going into the first half of 2012, buying opportunities continued to emerge in the uranium sector, Sydney-based Resource Capital Research (RCR) said on Monday.
RCR noted that the dynamics driving the near-term sector outlook continued to be dominated by the aftermath of the Fukushima nuclear disaster in Japan, including Germany’s decision to close reactors and the potential for disposal of surplus inventory.
“The sector themes have changed little in the past six months. There continues to be concerns over utility surplus uranium dispositions. Broader equity market concerns persist as well, in particular the economic outlook for the US and sovereign debt issues in Europe,” said RCR MD John Wilson.
“However, the recent emergence of strong strategic investor support and acquisition activity in the uranium sector reinforces the midterm positive outlook for high-quality, strategic assets,” he added.
Buying opportunities continued to emerge driven by perceptions of a floor to the uranium spot price holding at around $50/lb, and the recent emergence of strong investor support and acquisition activity at the large end of the market. Rio Tinto is investing some $1-billion in uranium, including A$342-million in the Energy Resources of Australia (ERA) rights issue and the C$654-million acquisition of uranium explorer Hathor Exploration.
There was also the anticipated bid for uranium developer Extract Resources by China’s CGNPC, which prompted Extract to go into a trading halt.
Diversified miner BHP Billiton was also looking to expand its uranium production at the flagship Olympic Dam project, in South Australia, after state and federal governments gave environmental approval for the expansion of the project.
BHP subsequently approved A$1.2-billion in precommitment expenditure for long-lead items ahead of a formal board decision in mid-2012.
Wilson noted that the sector fundamentals appeared positive in the mid to long term, with over 84 new nuclear power reactors expected to be commissioned globally by 2017, and 62 currently under construction. There were also 499 new reactors planned or proposed, including 171 in China, 57 in India, 44 in Russia, 34 in the US and 13 in the Ukraine.
“The key lessons from Japan’s nuclear crisis point to the need for, and benefit of, greater transparency and accountability of democratic governments and their institutions, and stricter oversight of government agencies in general, in this case nuclear agencies specifically,” said Wilson.
RCR noted that in the past month, the uranium majors have had mixed share price performances, with Cameco’s shares down by 13%, Denison Mines down 4%, Uranium One down 12%, ERA down 22%, Extract up 5%, and Paladin up 22%.
The global uranium majors have significantly underperformed the broader share market over the past 12 months, largely owing to setbacks following Fukushima, RCR noted.
The Canadian majors were down around 50% in the past 12 months, while in Australia, the worst performer has been ERA, down 82% over the past 12 months, the decline exacerbated by operational problems at the Ranger operation.
Paladin was down 66%, its decline exacerbated by ramp-up delays and higher cost outlook, particularly at Kayelekera, in Malawi.
The Merrill Lynch Uranium Equity Index was down 2% over the past month, down 7% over three months and down 54% over the past 12 months.
Edited by: Mariaan Webb
IN my view I note the biggest gains in stocks like these are when everbody wants out.Plenty of cash for pen to burn still and you don't sell shares at 12 year lows, especially if one's bullish longer term on the yellow cake.Seen this happen one to many times and sometimes you have to be very cautious in selling at the lower end i.e. Massive gains are made at the lower end of the cycle not the higher end so probably closer to a bottom and no where near a top imo and as i see it once investors think the uncertainty is gone in a year or so or months when ever that might be!!! Guess what next? more uncertainty so even though their is still question marks in the sector i think most of it is factored in and as mentioned the cash position of pen compared to other coys in a similar position i would be more inclined to buy something at a discount especially knowing that uranium will be much much higher later on then current levels and if it's good enough for Mr Jim Rogers who believes uranium has a bright future then im sure many will be jumping on board and doing their research soon, but at current levels the share price won't stay like this foreva, so must be approaching buying time for some soon.
Cheers good luck holders pen is a winner just be patient!!!!
PEN Price at posting:
3.3¢ Sentiment: Buy Disclosure: Held
(20min delay)