RCR sees flat uranium price in near term
According to equity research company, Resource Capital Research (RCR), there is no significant direction change anticipated in the spot price of uranium in the near term and its outlook is flat.
Image courtesy of Cameco
It reported in its quarterly uranium statement that the uranium spot price was trading at US$45.00/lb, down five per cent from three months ago (US$47.50/lb) and compares with US$52.50/lb at December 31st, 2008.
“Our view is in part informed by the Fund Implied Price, which at US$45.00/lb suggests market expectations for limited near term movement in the spot price. Since early August the FIP has traded in a range of ~US$42/lb to ~US$49/lb,” the report stated.
However, market views on near term price outlook are not uniform, driven by expectations of an increase in utility purchases in the new year leading to increased demand; countered by ongoing concerns about the impact of increased [DOE] liquidations on supply, with modest concerns of downside price pressure.
Following a significant production incident at Olympic Dam on October 6th, the spot uranium price rallied from US$43.50/lb to US$49.50/lb by the end of October. The price however has failed to find support and has since fallen back to US$45/lb.
“Given the incident is likely to remove 2Mlb U3O8 from the market by 1Q10 (when production is expected to recommence), in our view it is a little concerning that there hasn’t been a more sustained price response,” the report stated.
The long term contract uranium price has been more stable than the spot market price although it is down to US$61.00/lb from US$70/lb in December 2008.
The market valuation of Australian companies with one or more uranium projects is up 12 per cent over the past month, up 18 per cent over the past three months, and up 353 per cent over the past 12 months. This compares with Canadian companies with one or more uranium projects, up 4 per cent over the past month, up 19 per cent over the past three months, and up 198 per cent over the past 12 months.
In the past month, the uranium mining majors have had mixed share price performance: Cameco is up 5 per cent (three month performance +13 per cent), Denison Mines is down 9 per cent (three month performance -11 per cent), Uranium One up 2 per cent (three month performance +26 per cent), Energy Resources of Australia down 3 per cent (three month performance -10 per cent) and Paladin down 1 per cent (three month performance -7 per cent).
The Merrill Lynch Uranium Equity Index (a basket of uranium equities) is down 1 per cent over the past month, up 1 per cent over three months and up 147 per cent from the recent low reached October 27th, 2008.
“The focus on supply expansion in the uranium sector is shifting from exploration success to permitting and production. There is a growing pipeline of solid development projects and very advanced exploration projects and a growing number of mining permits being granted,” said John Wilson, managing director of RCR.
“With a typical 10 to 12 year development timeframe from initial discovery to production and technical, regulatory and financing hurdles for pending producers to overcome, development timeframes are far from certain. The outlook for the uranium market supply/demand balance remains finely poised through 2015,” he said.
To access the free summary report or to purchase the complete 82 page comprehensive report, visit: www.rcresearch.com.au/reports