Threat of Global Warming Continues to Drive Support for Nuclear Power
Tuesday October 2, 6:17 am ET
Q3 Global Uranium Equities Report Highlights Hundreds of New Reactors Planned for China, USA, Russia, Ukraine and India
SYDNEY AUSTRALIA--(MARKET WIRE)--Oct 2, 2007 -- Resource Capital Research ("RCR"), an equity research company which focuses on small and mid size resource companies, today published its major quarterly research report focusing on the uranium industry sector.
RCR's findings show that planned and proposed new nuclear power reactors worldwide have increased significantly from May to August 2007. The main increases are from China with 114 planned and proposed new nuclear power reactors announced, up from 63 in January 2007 (an increase of 81%); and the USA is up from 23 to 32 units. Russia has 25 planned and proposed nuclear power reactors, the Ukraine 22, and India 19.
This represents a global demand for 304 new nuclear reactors, an increase of 37% in 7 months and an increase of 99% from the number of planned and proposed new nuclear power reactors reported in May 2006. There are 439 nuclear power reactors currently in operation worldwide. Asia represents the highest growth region for new power reactors, driven by growth in electricity demand.
"The threat of global warming continues to drive support for nuclear power. Rhetoric from the world's major economies appears increasingly focused on the nuclear power option to achieve carbon emission reductions," noted John Wilson, Managing Director of Resource Capital Research.
The report reviews companies active in established uranium districts globally, including Australia, Canada, USA, Argentina, Peru, Mongolia, Zambia, Tanzania and Namibia. Dual TSX and ASX listed companies Paladin Resources (PDN) and Equinox Minerals are covered in the report. Over 500 junior and mid cap explorers, development and production companies are identified.
Uranium Sector Highlights
-The spot uranium price is US$85/lb, down 38% from its peak of US$138/lb 3 months ago and down 11% from US$95/lb 6 months ago.
-Forward indicators have strengthened from a low of US$70/lb mid 3Q07 with a modest bounce anticipated by early 2008.
-Current indications suggest the uranium price is heading to US$90/lb by early 2008, an increase of 6% from the current spot price; and US$120/lb by September 2008.
-Uranium fund sentiment and activity remain important factors in the outlook for the spot uranium price.
-Planned and proposed new nuclear power reactors worldwide have increased strongly from January to August 2007. As reported by the World Nuclear Association (WNA), this category has increased from 222 reactors (January 29) to 304 reactors (August 30), an increase of 82 reactors (or 37%).
-China has announced 114 planned and proposed new nuclear power reactors, up from 63 in January 2007 (an increase of 81%); and the USA is up from 23 in January 2007 to 32 units (up 39%).
-The market valuation of our selection of Australian uranium juniors is up 6% over the past month, down 19% over the past 3 months, and up 78% over the past 12 months.
-This compares with a selection of Canadian uranium juniors, up 15% over the past month, down 13% over the past 3 months, and up 68% over the past 12 months.
-Australian uranium companies are in aggregate trading at 45% off their 12 month highs and Canadian uranium companies are trading at 48% off their 12 month highs.
-Juniors are making solid progress advancing through important project milestones. Energy Metals Limited (Bigrlyi, Northern Territory) and Western Prospector Group (Gurvanbulag, Mongolia) have scoping studies pending. Bannerman Resources released its Goanikontes, Namibia scoping study 3Q07.
-The quarterly report feature article reviews the prospects for large production increases from ISR projects in Kazakhstan by 2015.
Equity Market Performance
The market valuation of Australian uranium companies (273 companies) is up 6% over the past month, down 19% over the past 3 months, and up 78% over the past 12 months. This compares with a selection of 306 Canadian uranium companies, up 15% over the past month, down 13% over the past 3 months, and up 68% over the past 12 months.
In the past 3 months the majors have had negative performances: Cameco (CCO) is down 18%, Denison Mines (DML) down 23%, Uranium One (UUU) down 13%, Energy Resources of Australia (ERA) down 12% and Paladin (PDN) down 21%.
Liquidity issues surrounding the USA sub-prime credit problems remain a market risk near term, and we continue to favor companies with a solid cash position and near term news flow.
Uranium Price Outlook
The spot uranium price is US$85/lb, down 38% from its peak of US$138/lb 3 months ago and down 11% from US$95/lb 6 months ago.
Forward indicators suggest a flat outlook for the uranium price of US$80/lb to US$90/lb. There is potential for minor weakness over the next month before the expected upturn to US$90/lb late 4Q07 or early 1Q08. Indicators currently suggest the uranium price market expectation is US$120/lb by September 2008.
These expected price levels are revised down from the RCR June uranium quarterly when indicators suggested a uranium price of US$148/lb August 2007 and US$165/lb (-27%) by late 2008.
The September 2008 indicator reached a high in 2Q07 of around US$210/lb and a low in 3Q07 of around US$70/lb. The industry average long term uranium price has remained firm at US$95/lb.
Uranium fund sentiment and activity remain important factors in the outlook for the spot uranium price. The funds are thought to hold about 20mlbs U3O8, which represents a significant percentage of the annual spot market volume, of about 18mlbs to 28mlbs. This leaves the spot market price highly susceptible to further fund activity.
The drivers of the recent spot market pullback have been:
-Utilities near term demand needs covered.
-Primary producers near term demand needs covered.
-Uranium investment funds started to sell inventory.
-Traditional slow period during the northern hemisphere summer.
Events of the past 3 months include:
-The threat of global warming continues to drive support for nuclear power. The USA stated at the United Nations in September 2007 that global emission reductions will not be achievable without significant global utilization of nuclear power. Indeed, the USA currently has 32 new nuclear power reactors planned and proposed, with potential for significant additions at brown field sites.
-Cameco's Cigar Lake uranium mine (Canada) start up date is expected to be pushed back 1 year to 2011, from 2010.
-BHP Billiton indicated the timeline for the Olympic Dam copper, uranium, gold expansion with construction targeted at 2009 - 2013.
-Bannerman Resources (BMN) released its scoping study for the Goanikontes project, Namibia. The project has an envisaged plant capacity of 15mtpa, producing 6.5mlbspa to 8.8mlbspa U3O8, opex of US$27/lb to US$30/lb U3O8 and capex of US$400m. The resource head grade is 0.022% U3O8.
-Toro Energy Limited (TOE) announced the proposed acquisition of Nova Energy Limited (NEL) in a 5.5:1 share swap -- creating one of Australia's largest uranium explorers (~A$360m market cap).
-Scoping studies are expected by the end of September 2007 at Bigrlyi (Energy Metals Limited, EME), a relatively high grade, Northern Territory situated project; and at Western Prospector Group's (WNP) Gurvanbulag project in Mongolia.
-Strathmore Minerals (STM) - Sumitomo JV (60/40) to develop the Roca Honda underground mine in New Mexico, USA. (July 2007).
-Energy Fuels announced plans to build a uranium mill (Pinon Ridge) at Naturita, Colorado, USA.
-Denison Mine's Tony M mine, Utah, USA, part of the Henry Mountains Complex, received permits to commence mining.
-Majors continue to show interest in the junior sector with Rio Tinto signing a letter of intent with Zambezi Resources (ZRL) for uranium rights at the Mulofwe Dome project, Zambia. Cameco announced a strategic alliance with Cue Capital (CUE) and acquired a 10.4% interest in the company. Cue has exploration and development projects in Paraguay.
About Resource Capital Research
Resource Capital Research ("RCR") was founded in 2004 and is based in Sydney. RCR provides investors with in-depth reports on current investment opportunities in the mining sector both in Australia and globally. The focus is on small and mid cap resource companies, ranging from exploration stage, through development and production. John Wilson the principal of the firm and analyst has over ten years' experience analyzing mining companies in Sydney and on Wall Street including for major investment banks.
Abbreviations: WNA - World Nuclear Association, lb - pound, Mlb pa - million pounds per annum, U3O8 - uranium oxide.
Source: Resource Capital Research
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