Uranium expected to be volatile for monthsAustralian Financial...

Uranium expected to be volatile for months

Australian Financial Review
PUBLISHED: 1 Apr 2011 Online
Angela Macdonald-Smith

Uranium spot prices are likely to remain volatile over the next several months in the wake of the Japan nuclear crisis but the long-term contract price will probably remain high enough to underpin the large Namibian projects planned by Extract Resources and others, according to Resource Capital Research.

While spot prices for uranium oxide slumped to $US49 per pound in the wake of the March 11 earthquake near Sendai, down from $US68 beforehand, prices have since partially recovered to $US60 per pound, on par with prices in December. Long-term rates have so far remained unchanged at $US73.

"Any impact from Japan on the contract price is expected to be temporary, remaining at or quickly returning to over $US70 per pound territory, the level necessary to support development decisions at a number of advanced projects," the Sydney-based research firm said in its latest quarterly uranium report.

That means prices should remain high enough to support development decisions at projects including Extract's huge Husab venture, and those proposed by Bannerman Resources and, potentially, Deep Yellow, RCR said.

RCR's managing director John Wilson said he expects it may take 12 months for the full impacts of the quake on the nuclear power and uranium mining industries to unfold.

"However, mid- to long-term, growth in the sector is expected to remain buoyant, albeit on a flatter trajectory than previously thought, driven by strong fundamentals, including the global need for low carbon, base load electricity generating capacity," Mr Wilson said.

RCR calculates that the three or four reactors in Japan that are expected to be permanently shut down represent 1-1.5 million pounds a year of uranium demand. Given annual demand from nuclear power is about 185 million pounds, the destroyed reactors represent less than 1 per cent of annual demand.

Uranium equities have taken a beating amid the nuclear crisis, with the Merrill Lynch uranium equity index of a global basket of uranium equities down 19 per cent over the past month, RCR noted.

The impact on uranium mining majors has been stark, with Cameco down 23 per cent in the past month, Uranium One down 32 per cent, Paladin Energy down 24 per cent and Energy Resources of Australia down 19 per cent.

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