After getting beaten black and blue, yellowcake is showing signs it may be picking itself up from the floor.
The uranium industry was heavy hit following Japan's Fuku shima nuclear disaster in February 2011. Uranium producers and explorers were further punished by the ongoing drama of the European Union's sovereign debt crisis, which spurred a market-wide sell-off of equities and an outbreak of 52-week lows.
Now, however, a recent spate of good news has companies and analysts believing the uranium industry is showing real signs of getting back on its feet and ready to make advances in the near and long term.
According to trade publication Ux Consulting, uranium's long-term per-pound price rose to US$61.50 for the month-end of May, up 2.5% from US$60 in April – its first increase following Fukushima. The long-term price is the key determinant for uranium suppliers and buyers, as most uranium is sold in long-term contracts.
Market activity is also heating up.
Cameco Corp. (TSX:CCO) recently filed a preliminary prospectus to raise as much as $1 billion, even though the company already has $1.4 billion in cash and $1.3 million in available credit, spurring talk the Canadian uranium producer is in a big buying mood. Closer to home, Vancouver-based Kivalliq Energy Corp. (TSX-V:KIV) closed an $11.5 million financing. Kivalliq – along with Fission Energy (TSX-V:FIS), UEX Corp. (TSX:UEX) and Crosshair Energy (TSX:CXX) – are among a group of Vancouver-based uranium explorers making multimillion-dollar spends this year at a time when equity financing is tight.
Jim Paterson, Kivalliq's CEO, is undeterred by Fukushima and market uncertainties.
"I'm a simple man, so I look at future energy demands," Paterson said. "I believe as a global population, we'll probably use more energy in the future than we're using now as populations grow. In terms of the global energy mix as it stands right now, uranium will remain a component of that."
Kivalliq's cash injection will help fund this year's $20 million work-program, which is focused on advancing its flagship Angilak Property in Nunavut. The 227,000-acre land package currently hosts an estimated 27.13-million-pound uranium deposit.
"It's very difficult to find an economic ore body. Anybody in the exploration game will tell you that – it's not easy. And add to that the difficulty of finding an economic uranium ore body in a jurisdiction where you have public support," Paterson said of the backing of Inuit from Nunavut. "We believe it will be a new uranium district, and we feel that's worth spending the money on to prove that thesis."
Fuelling some of the industry's cautious optimism is that the shadow of Fukushima is starting to recede and new builds are back on the drawing board, leaving the inevitability of uranium demand to return.
Recently, the local government of the Japanese town of Ohi voted 11-1 to restart the town's two nuclear reactors to ward off imminent power shortages in the upcoming summer months. And on May 30, Japan's prime minister said that the country's remaining 52 idled reactors could be restarted if their safety has been confirmed.
"The big catalyst really is whether, when and how fast Japan restarts its reactor fleet in the near term," said Geordie Mark, Haywood Securities research analyst. "And, ultimately, what China does with their existing reactor fleets and when they re-commence approval for additional reactors, which, given the recent approval of the nuclear safety plan by the state council, is expected pretty soon."
Another catalyst is the end of the U.S.-Russian Highly Enriched Uranium Agreement, also known as the "Megatons to Megawatts Program," under which uranium from old Soviet-era nuclear warheads was converted to low-enriched uranium for export to North American and European nuclear reactors. The program expires at the end of 2013, leaving an annual supply shortfall of 24 million pounds – comparable to Cameco's annual production.
"That should have an immediate effect on the price of uranium in the near-term because you're basically taking an important supply off of the table," said Ross McElroy, Fission Energy's president and COO.
"Mining is going to have to take up this slack."
M&A talk could place a premium on companies exploring in the Athabasca Basin, where B.C.-based UEX and Fission have key properties. Companies are keen to wrap resource numbers around projects so no value is lost in the ground, with Cameco and Rio Tinto (NYSE:RIO) possibly lurking. Of note, UEX is owned 22% by Cameco and has several joint ventures with global uranium producer Areva.
"If there's going to be any action in the basin, I think it may be mergers and acquisition. The basin has been scoured," said Graham Thody, president and CEO of UEX, which has a planned $7 million work program for this year.
Now is time for a lengthy catch-up after the global nuclear hiatus following Fukushima, said Mark.
"It's basically drawn out the development timelines for producers in the longer run, which then sustains [the] supply-demand scenario that we have in place," he said. "This is compounded by today's issues around uncertainty in the financial markets as raising capital for exploration and development is both a challenging and expensive task for companies. These features together speak well to the underlying fundamentals of supply-demand."
Uranium's long-term per-pound price before Fukushima was US$75. It reached a high of US$95 in 2007. Fission, with projects in Quebec and Saskatchewan, increased its work-program spending this year to $12 million from $8 million, with the focus on its Waterbury Lake project in the Athabasca Basin.
"Our partner in our Waterbury Lake project is a consortium led by Korea Electric Power Corp. (KEPCO). If anybody has a long-term view of the nuclear sector it's utilities companies, such as KEPCO, who look at uranium with a probably 50-100-year window. They're very bullish on uranium," said McElroy. "They're just as bullish now as anytime. And if they're optimistic, we've got very good reason to be as well." •
