Published on Monday January 07 2013 (AEST)
Uranium demand is set for resurgence as a number of Asian nations recommit to nuclear power, setting the stage for a transformation from an over-supply to a supply shortfall, which bodes well for uranium producers and soon-to-be producers. Japan is the most recent Asian country to consider reactivating its nuclear power plants following the Fukushima nuclear reactor disaster.
The newly elected Liberal Democratic Party government plans to steadily restore nuclear power capacity between 2013 and 2015. Since Japan’s earthquake and tsunami, the nation’s 54 reactors were shut down and those under construction placed on hold. Japan was relying on extra coal, oil and gas to meet its energy requirements, which set the nation back an additional US80-$100 million a day. Japan is the "swing" factor in the uranium price recovering sooner.
Should the Government push the pedal, then the supply is likely to be quickly taken up, leading buyers scrambling for quantity. China previously announced its intention to resume approval and construction of new nuclear power plants in the country and has already begun construction of the Shidaowan nuclear power plant. The Shidaowan nuclear power base is the largest in China in terms of investment and power-generating capacity.
The nation has committed to increasing its nuclear power capacity at least fivefold to an installed capacity of between 70 and 80 GWe by 2020. Other countries accounting for new plants coming on stream include India, South Korea and Russia. Germany is also tipped to eventually re-join the nuclear power fold. Around 62 nuclear reactors will be under construction globally in 2013, with another 484 either planned or proposed. China has the largest share with 26 under construction.
While the market has not been kind to uranium stocks in the past few years, there have been exceptions including Toro Energy (ASX:TOE) and Peninsula Energy (ASX:PEN) of late. It may also lift other uranium counters.
With a robust long term outlook for uranium demand likely, major producers and those coming into production in the next two to four years could see a strong turnaround as supply dwindles and they become well placed to fill a supply gap.
The rebound in demand will also see a revival in the uranium price, with most estimates predicting the spot price will reach at least US$60 per pound and could go as high as $90 per pound, well above the current price of around $45 per pound by 2014-15.
Producer Paladin Energy (ASX: PDN) is already seeing some improvement in its share price with a 44% gain to its last traded share price of $1.065, compared to the low of $0.74 it was trading at in mid-November.
The company is producing from two mines in southern Africa – the Langer Heinrich mine in Namibia and the Kayelekera Mine in Malawi.
Paladin has completed a stage three expansion at Langer Heinrich with production at 5.2 million pounds per annum, and studies underway to further expand this to 10 million pounds per annum.
Kayelekera is producing near nameplate capacity at 3.3 million pounds per annum.
Meanwhile, junior Toro Energy is working to become Australia’s next uranium producer with its Wiluna Uranium Project in Western Australia.
The project has already received State Government approval and is nearing a Federal Government approval decision.
The potential timing of the Wiluna Uranium Project to come into production is ideally suited to the global shortfall in uranium supply emerging during 2015-2016.
The project would process 1.3 million tonnes per annum of ore to produce about 820 tonnes of uranium oxide concentrate.
Toro’s share price has risen 77% since mid-2012, with its last traded share price $0.11 compared to the $0.062 low in mid-May 2012.
Peninsula Energy is another near-term producer well placed to cash in on the expected shortfall in uranium.
The company is targeting production from its Lance Projects in Wyoming in the second half of 2013 at an initial rate of 750,000 pounds of uranium per annum, ramping up over three years to 2.2 million pounds per annum.
Peninsula has also gained some traction in its share price having added 79% to reach its last traded price of $0.043, up from a low $0.024 in early October 2012.
Black Range Minerals (ASX: BLR) is another company set to bring its uranium project into production at a time of short supply.
The company is developing one of the largest uranium resources in the U.S., the Hansen/Taylor Ranch Uranium Project.
The project has an Indicated and Inferred JORC resource of 69 million tonnes at 600 parts per million (0.06%) for 90.9 million pounds of uranium.
Black Range is targeting the receipt of all mining permits by 2015 and the commencement of production in 2016.
Meanwhile, Deep Yellow (ASX: DYL) is another contender in the uranium market.
The company’s flagship Omahola Project in Namibia hosts a JORC Resource of 39.6 million tonnes at 437 parts per million for 38 million pounds of U3O8 from three hard rock deposits.
Omahola is at the Pre-Feasibility Stage, with concurrent resource drilling and ongoing exploration along the highly prospective Ongolo-MS7 trend.
Deep Yellow’s share price has also gained ground on the ASX with its share price last trading at $0.066, a 74% increase on the low of $0.038 in early September 2012. Which is illustrative of the gains that have been made in uranium stocks - and a portent of more to come.
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