uranium stocks on the rise

An encouraging article courtesy of the Edmonton Journal distributed by Peninsula Energy.

"Suddenly, long-suffering uranium stocks are taking flight.

Shares of Cameco, the world’s top producer, touched the $25 mark for the first time in two years on Monday. Since Jan. 1, the stock has gained nearly $3, or more than 13 per cent.

Smaller players like Denison Mines, Fission Uranium and Paladin Energy have also posted double-digit gains since the year began. The biggest reason is Japan’s plan to finally restart some of its 50 shuttered nuclear reactors later this year. The reactors were taken off-line in 2011, after a devastating earthquake and tsunami obliterated the Fukushima power plant, which is still reportedly leaking radioactive water.

That led to a uranium supply glut, sending prices crashing. The spot price for the nuclear fuel sagged to just $34.50 US a pound by the end of 2013, half the level before the Fukushima disaster, and 75 per cent below the 2007 peak of $136.

At the current spot price of $36, it has barely budged since. But bullish analysts like David Sadowski of Vancouver’s Raymond James Ltd. say brighter days lie ahead, as market conditions tighten. Sadowski currently carries an “outperform” rating on Cameco and Denison and a “strong buy” recommendation on Fission.

Of the 50 halted Japanese reactors, 16 have applied for restarts, he notes in a recent report, and half a dozen are expected to return to service by year’s end.

A series of operating problems that triggered recent uranium mine closures in Australia, Namibia and Niger — affecting about 15 per cent of global supplies — have also underlined the growing risk of a future supply crunch, he says.

In addition, an accord between the U.S. and Russia allowing the Russians to recycle uranium from Soviet-era nuclear weapons is set to expire this year, removing about 24 million pounds of uranium from western markets.

Add it all up, and the picture that emerges is one of a looming supply crunch in the second half of the decade.

“Demand continues to rise at about three per cent a year,” Sadowski said in an interview. “Down the road, we’re looking at a supply shortfall because supply just can’t rise at that rate. So that’s really been our underlying thesis.”

Of course, many analysts said similar things a year ago, when it looked like the restart of Japan’s reactors might proceed more quickly. That didn’t pan out, and uranium prices continued to slide.

But Sadowski and a growing chorus of bullish analysts are convinced that a turn is finally at hand. Several investment dealers in the U.S. and Canada — including TD Securities, Scotiabank and Bank of America — have upgraded their ratings and target prices on Cameco over the past couple of weeks.

Power utilities, which need to lock in supplies years in advance and have typically contracted for about 160 million pounds of uranium annually over the past decade, purchased just 20 million pounds last year, Sadowski notes.

As a result, he expects the big nuclear fuel buyers — about 80 per cent of which are located in China, India, Russia and South Korea, and all of which have active expansion programs — to be forced back into the market soon to cover their future needs.


Sadowski’s analysis, using data from U.S.-based Ux Consulting Co., shows that future uncontracted annual uranium needs among utilities will soar between 2015 and 2020, from 18.1 million pounds to more than 102 million pounds.

“Utilities that are not fully covered may have to rush for what is available,” he said in his report. “And, as utilities have historically contracted three to four years in advance of their needs (largely depending on the region, with Asian utilities being the most conservative), we are now in the window of when this rush may occur.”

Cantor Fitzgerald analyst Rob Chang is also upbeat on the uranium outlook.

“We have long pointed to 2014 as the kick off year for uranium prices to return and for the commodity to retake its position in the spotlight,” he says, in recent report.

“While uranium equities have shown some strength over the last quarter of 2013, we believe there is significant upside remaining as the spot price of $34.50 per pound is below the current marginal cost of production of $40 per pound, and significantly below the minimum incentive price for future supply to match future uranium demand ($70 per pound),” he adds.

“We believe prices are set for a violent move higher as Japan is set to restart some reactors this year. We forecast 12 to restart in 2014. Moreover, despite the negative headlines of anti-uranium sentiment ... there are more reactors under construction, planned, and proposed now (556) than since before Fukushima (541). "


Luck to all.