Australia’s uranium sector is highly speculative, but it offers an opportunity to make relatively fast money for investors willing to heighten their risk/reward appetite.
The uranium spot price has risen from $US41.75 a pound in June 2010 to $US71.83 a pound at the end of January 2011, a 72 per cent increase. China and Russia’s increasing demand for uranium is mostly behind the price rise, according to sharemarket analyst, Hamza Habib, of Patersons Securities. Habib says uranium, as a growing energy source, is highly sought in the stgeloped and stgeloping world, with supply concerns emerging after 2013. Habib says the next 12 months will be decisive for uranium stocks amid feasibility studies, financing and mine stgelopment. “On an investment level, it’s important to understand details, such as estimated cash costs for extraction, resource size and mine life,” Habib says. “Investors should weigh up the likelihood of a company becoming a producer and how long it will take.”
With this is mind, Habib offers his choice selection of uranium explorers and stgelopers that investors can consider adding to their portfolios. Compared to producers, mining explorers carry more risk in the absence of earnings, or an industry downturn. However, the investment rewards can be much greater, particularly on news of a resource discovery. Habib’s selections are suitable only for those who understand and are prepared to take on more risk as these companies make the transition to producers. (See table on timeframes below). Also, estimated cash costs are subject to change depending on a myriad of factors.
A-Cap Resources (ACB)
The company has a big JORC (Joint Ore Reserves Committee) resource of 157 million pounds of uranium oxide and Chinese investors hold a stake. Habib says although ACB’s resource is low grade compared to its peers, the company is confident of increasing its resource to 300 million pounds of uranium oxide in 2011. “With cash costs estimated at US$33 a pound and a projected mine life of between 20 and 30 years, ACB is one to watch in 2011,” he says. “This may provide a solid investment opportunity for years.”
Berkeley Resources (BKY)
Berkeley has a resource of 83 million pounds of uranium oxide at its Salamanca project in Spain, Habib says. It offers relatively low cash costs estimated at US$26 a pound and a projected mine life of 20 years, which Habib describes an attractive investment proposition. Also, the Korean Electric Power Corporation is showing interest in taking a significant stake in Berkeley. “This also enhances Berkeley’s outlook moving forward,” Habib says.
Extract Resources (EXT)
Extract is one of the largest listed uranium companies on the ASX, and it’s looking to position itself as a leader in the sector. A resource of 366 million pounds of uranium oxide is among the biggest amid estimated cash costs of US$26 a pound and a projected mine life of more than 15 years. “Extract is well positioned for growth, with a cash balance of about $100 million,” Habib says. He says Rio Tinto’s 15 per cent stake in Extract Resources also provides investor confidence.
Peninsula Energy (PEN)
This explorer is looking to start production in 2012. Habib says: “As the market has only valued PEN for its US mine and not for potential in its South African project, there seems to be a good investment opportunity here with room for further upside.” He says if US operations are approved, the company’s share price could easily continue its recent upward trend.
This South Australian based company is well positioned to meet guidance of becoming a producer within the next three years. A projected mine life of 12 years and estimated cash costs of $US28 a pound makes it worthy of consideration. Habib says another advantage is the South Australian Government is more receptive to uranium mining and stgelopment, and may argue its merits in any debate before the Federal Government.
|Company Production||Share Price||Expected First|
|A-Cap Resources||70.5c||January 2013|
|Berkeley Resources 2012||$1.80||Fourth Quarter|
|Extract Resources 2012||$9.41||Calendar Year|
|Peninsula Energy 2012||10.5c||Second Half|
|UraniumSA 2013||59c||Calendar Year|