Australian Financial Review PUBLISHED: Online 09 Dec 2010 Resources
Uranium's glow leaves some stocks in the cold
Stephen Shore
Soaring uranium prices have been a boon for the producers of yellow cake this year, but not everyone has shared in the bounty.
Increased demand from Chinese utilities has pushed spot prices for uranium up to two-year highs at $60.50 a pound, a 32 per cent rise since September 1.
In November the federal government ratified uranium exports to Russia, and market watchers reckon the deal has increased the likelihood that clearance could soon be granted to supply the fast-growing Indian market. India has not yet signed the Nuclear Non-Proliferation Treaty.
Most uranium explorers and producers have seen their share prices rebound alongside the spot price, although prices are still well down from the record $US138 a pound reached in July 2007.
Paladin Energy has rallied 20.8 per cent this year. The company has potential for strong production growth and has intellectual property with respect to its method of processing of uranium ore types. Observers say its reserve base could attract the attention of a major acquirer.
Paladin is unusual among the listed uranium producers in Australia because its operating mines are in Namibia and Malawi, while its uranium exploration sites are in Western Australia, the Northern Territory and Queensland.
Its two main projects are the Langer Heinrich mine in Namibia and the Kayelekera mine in Malawi, and Paladin also has large investments in Australian listed uranium explorers Summit Resources and Deep Yellow.
In a recent note to clients, Shaw Stockbroking said that Paladin stood out among its peers because of production growth which could double output over the next three years, which the broker said was unmatched in the industry.
The company expects to increase production from 7 million pounds this financial year to 14 million pounds by 2014.
The Rio Tinto-owned Energy Resources of Australia is one of the few miners to miss out on the boom.
The share price of Australia's largest producer of uranium oxide has nearly halved this year towards levels not seen since 2008. Lower grades have cut production and increased costs, and investors have been concerned about the impact of the upcoming wet season on its Ranger mine in the Northern Territory.
A delay in environmental approval for its heap leach facility, which is required to maintain production once the Ranger pit is exhausted in 2012, has also weighed on the stock.
Uranium explorer Extract Resources may be miles away from production but that hasn't stopped investors from piling into the stock on hopes that the company's Husab mine in Namibia could be the second largest uranium mine in the world.
Extract shares have soared more than 50 per cent in the past two months to a 14-month high of $9.19 this week. The stock has been one of the best performers over the past two years - gaining 600 per cent.
Since April 2009, the company has been working towards a definitive feasibility study at Husab on the basis of an open-pit mine supplying 15 million tonnes of ore a year.
The company expects to hand down the definitive feasibility study in the first quarter of 2011 and commission the site in 2014.
Uranium prices could rise further alongside other commodities, despite fears of oversupply in the future.
BHP Billiton's Olympic Dam has huge potential for uranium production, but the company has been wary of its potential to flood the uranium market and depress prices.
Olympic Dam - the world's largest known uranium resource - could ultimately produce more than 30,000 tonnes of uranium a year. Last year, total global uranium production was about 58,000 tonnes.
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