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China nuclear program boosts uranium producers

Steel News - Published on Mon, 22 Nov 2010

Reuters reported that after weathering a tough Q3, Canada\'s uranium producers are looking at much brighter prospects as their shares surge spot uranium prices jump and growing demand for nuclear fuel pushes expansion into overdrive.

Not surprisingly, China is driving the underlying trend. Its ambitious program of building nuclear power plants promises double digit growth in demand for uranium a trend that should benefit Canada\'s established producers and juniors alike. In addition, the Asian superpower could prompt a round of mergers and acquisitions as it looks for ways to control the supply of uranium needed to feed its fleet of reactors.

Global uranium demand is expected to grow 32% by 2015, according to RBC Capital Markets, a forecast that already has share prices climbing. Analysts are urging investors to jump on the bandwagon and buy shares of Cameco, Uranium One, Paladin Energy and other industry stalwarts.

Mr Edward Sterck analyst of BMO Capital Markets said that over the next 10 years without a shadow of a doubt, we\'re going to need significant expansions in uranium production. By 2010, China aims to produce between 80 GW and 112 GW of electricity from nuclear power up from a current capacity of just 11 GW. In order to start and fuel those new reactors it will need to buy an additional 82 million pounds of uranium. In 2010, total global production for uranium is estimated to be about 187 million pounds. Annual demand is estimated at 190 million pounds.

He said that in terms of the producers pick one that has a high degree of exposure to spot prices. There may be price spikes. Uranium spot prices have risen nearly 44% since June hitting USD 58.50 per pound this week. This momentum has helped push shares in Uranium One up as much as 142% while Paladin has risen almost 60% and Cameco 66%.

Mr Sterck said that in nearly every other commodity, China\'s gone out there and bought assets to ensure that they have some form of captured supply. They haven\'t done that in uranium yet. Juniors are a prime target, as they are cheaper and have longer timelines to get into production which meshes well with China\'s nuclear rollout.

He doesn\'t rule out a mid tier producer being gobbled up by China or a diversified miner with uranium interests. He sees Paladin which has no majority shareholder as a prime takeover target. While he says the climate is ripe for mergers, he emphasizes that higher uranium prices will drive any deal making. Higher prices will boost the value on projects that companies had put on the back burner after spot prices tumbled from a peak of about USD 135 per pound in 2007.

Analysts are calling for spot prices to average around USD 65 a pound in 2011, but there are still risks for investors looking to add uranium producers to their portfolio. Most of the demand is long term and much of the future supply is located in politically unstable regions of the world.

(Sourced from Reuters)

Posted By : admin on Mon, 22 Nov 2010
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