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Focusing on a long term positive outlook for uranium prices, BMO Analyst, Edward Sterck believes, “in terms of potential positive catalysts the main thing needs to be reinforcement of positive sentiment from China once it announces that its safety review will allow it to continue to license new reactors.”
The spot uranium price closed the week at $52.50 per pound on September 9 according to TradeTech Consultants, representing a 4.0 percent increase for the value from the previous week. Spot supply and spot demand for uranium has been on lower volumes with a high price sensitivity of new supply or emergent demand immediately reflected in the spot price for uranium. Traders and financial entities stimulated price increases over eight transactions reported with producers, traders, and financial entities participating as sellers.
Focusing on a long term positive outlook for uranium prices, BMO Analyst, Edward Sterck believes, “in terms of potential positive catalysts the main thing needs to be reinforcement of positive sentiment from China once it announces that its safety review will allow it to continue to license new reactors. I would also like to see some buying picking up in the spot markets from organizations such as China Guangdong Nuclear Power Group and China National Nuclear Corporation.” As a primary consumer of nuclear power, the United States’ most recent positive industrial production data could provide investors and observers some guidance for what to expect with Thursday’s release by the Federal Reserve.
Corporate reorganization
On Tuesday, Hathor Exploration (TSX:HAT), the subject of the recent $567-million hostile bid from Cameco (TSX:CCO), published the results of a preliminary economic assessment (PEA) of its flagship Roughrider deposit in Saskatchewan. The company has enjoyed tremendous success since listing on the Toronto Stock Exchange in April with an increase in share prices at 119.6 percent.
The published numbers provide a compelling cost structure for investors, comparing the forecasted average operational expenses for Roughrider of $14.44 per pound of uranium to the forecasts for Cigar Lake and McArthur River of respectively $23.14 and $19.69 per pound of uranium. The scoping study for Hathor has estimated an 11 year mine life span for the deposit, based on uranium production of 5.0 million pounds per year, with total costs relatively low and to, “potentially be one of the lowest cost uranium producers in the world.” Capital expenditure for the mine and mill at Roughrider are expected to have an internal rate of return (IRR) of 38 percent and a payback of 1.2 years, using a discount rate of 7 percent and a longer term uranium price set on averaging $70.00 per pound.
The Board of Directors of Hathor, together with its legal and financial advisors, is urging shareholders not to respond to the Cameco offer until it has formally responded to the unsolicited bid on September 14th.
International developments
Paladin Energy (ASX:PDN) has deployed $127.2 million from its project finance facilities for the development of the Langer Heinrich uranium mine, the world’s fifth-largest by output.
Edward Sterck expresses guarded optimism on the company’s near term prospects, “I think Paladin will actually hit the design capacity production targets at both the Langer Heinrich operation and also at its Kayelekera operation in Malawi. The main problem with the company has been that it has overpromised results to the market and under delivered. It does have the technical ability to follow through on its targets but it is simply likely to take longer to get there than it is telling the market. So at present I don’t really see any fundamental problems with the company that would suggest tagging it as an Underperform.” He has taken his target price for the company down 14.3 percent to $3.00 per share, revising his guidance “on the fact that the company is taking longer to get there than expected. And then obviously the outlook for nuclear power or the market’s perception of nuclear power and uranium has been somewhat reduced post Fukushima. And I think that the market is applying smaller valuation multiples to the uranium companies than it did previously.” This has been a challenging year for Paladin shareholders with the share prices retreating to the range of $1.65 down 66.5 percent on a year to date basis.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.
