Dawn of a new uranium bull?

May 06, 2009

Author: Melissa Pistilli


Recent market and industry reports suggest that the uranium sector may be on the verge of a new bull market cycle as the spot price for U308 rises slightly to $44 per pound. "We believe the uranium market is in the early stages of a bull market rally that could last three or four years," says a report by RBC Capital Markets.

In the report, analyst Adam Schatzker notes that uranium equities have rebounded nearly 225 per cent, although they are still around 68 per cent under their historic peak. Schatzker believes the market is probably two years away from reaching those peaks again.

The most important factor contributing to Schatzker and other analyst's recovery forecasts is what many see as a devloping supply/demand shortfall as nations around the world turn to nuclear power as a greener alternative to fossil fuels and utility companies move to acquire dependable supply lines. UX Consulting estimates 2009 uranium demand at 171 million to 184 million pounds with production at only 125 million pounds.

"We think the uranium market will be facing substantial deficits and that utilities will have to pay higher and higher prices to secure both spot and long-term supplies. We also believe that the longer the spot price remains depressed (e.g. below US$70/lb), the more dramatic the price run-up will be," said Schatzker.

Speaking at the annual shareholder's meeting last week (his last official function before stepping down), Denison Mines Corp. [TSX: DML] [NYSE: DNN] CEO Peter Farmer said he expects the spot price to increase through 2009 and to possibly "spike" as worldwide demand rises.

Others believe uranium prices could rise as much as 35 per cent in 2010 on energy demand out of Asia and Western Europe. "By historical standards, the current price is pretty high and I imagine they'll be trying to lock in as many sales contracts as they can," said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management. "Energy will be a key commodity and especially for Asian economies."

Another sign that the uranium market is set to rebound is the latest reports concerning mining giant Cameco Corp's [TSX: CCO] [NYSE: CCJ] purchasing activity. On Friday, Cameco reported that its quarterly profit dropped 38 per cent on higher production costs. The rise in cost is due to uranium purchases at near-spot prices during the first quarter.

The purchases, said Cameco CEO Jerry Grandey, are a part of a longer-term strategy that will allow the company to take advantage of rising uranium prices. "Down the road, we will realize additional revenue and earnings as we deliver the purchased material to our customers," said Grandey.

Uranium Mining Stocks

Investors are once again getting excited about uranium miners, especially those companies with viable, advanced projects. "We think consolidation in the uranium business will occur in the coming 12 months, but the number of quality names is limited and should help drive equity prices higher," said the RBC report.

Some names making the market reports include First Uranium [TSX: FIU] and Deep Yellow [ASX: DYL]. Both have had "strong positive inflows" so far this year, according to Mineweb's Barry Sergeant. First Uranium has had the "most spectacular price gains . . . up 174 per cent% from prices on 12 January 2009." Deep Yellow has advanced 86.7 per cent "particularly on more recent drilling results."

On Tuesday, shares of First Uranium on the TSX reached a 52-week high of $7.68 to close at $7.36.

Shares of Deep Yellow on the ASX closed at .28 cents, down from a 52-week high of .38 cents.