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Uranium stocks have taken a beating this year but could be set to recover as the spot price stabilises and the change of government in Western Australia opens the door to mining there.

The spot uranium price has steadied at around $US64.50 a pound after it more than doubled last year to a peak of $US136 before sliding to $US55. The recovery is welcome news for the 80-plus uranium hopefuls listed here, while the four producers are also gaining from the drop in the Australian/US dollar.

Uranium’s rapid rise and fall were blamed on speculators as most of it is sold on long-term contracts rather than on the spot market, although some contracts have a component related to the spot price. Uranium is sold directly rather than via a central exchange but a couple of private companies monitor the market and they estimate the contract price at around $US80 a pound.

Uranium’s rapid rise and fall were blamed on speculators as most of it is sold on long-term contracts rather than on the spot market, although some contracts have a component related to the spot price. Uranium is sold directly rather than via a central exchange but a couple of private companies monitor the market and they estimate the contract price at around $US80 a pound.

During uranium’s lean years of low prices in the 1980s and 1990s there was little exploration so there is undoubtedly more of it in the ground and this has driven the floats in recent years of companies that have gained access to acreage that was explored then abandoned in the 1970s.

Warwick Grigor, managing director of research house Far East Capital, believes uranium stocks have been oversold and says the metal stands out among the commodities because all forecasters see a shortage for the next five to 10 years.

“The one sector of the minerals industry which is guaranteed the longest favorable outlook is uranium,” he says. Grigor believes smart investors will be buying now to take advantage of price weakness.

He likes Alliance Resources Ltd which has a 25 per cent carried interest in the Four Mile Uranium project in South Australia, one of the few states that welcomes uranium mining. The remaining stake is held by an affiliate of General Atomics of the US that operates the Beverley uranium mine, near the Four Mile project. Grigor says the resource is high grade and has a low technical risk.

Another stock is Berkeley Resources Ltd, listed on the ASX and London’s Alternative Investment Market. Berkeley holds 450,000 of acreage in Spain which it says covers all the main historical mining and exploration uranium acreage.

Energy Metals has prospects in the Northern Territory and Western Australia covering ground that was explored in the 1970s and the company has also been tipped for a takeover bid.

Australia’s listed producers are BHP Billiton from Olympic Dam, Energy Resources of Australia (ERA) from Ranger, Paladin Energy Ltd from the Langer Heinrich mine in Namibia and Rio Tinto. Apart from its majority stake in ERA, Rio holds 68 per cent of the Rossing mine in Namibia and earlier this month (Sept 11) bought 10 per cent of Extract Resources, whose prospects include Rossing South, five kilometers from the Rossing mine. Extract’s price jumped on speculation that Rio will be looking to Rossing South to extend the life of its own mine.

The state election in Western Australia has revived interest in uranium as the Liberal government will allow mining. Although uranium has never been mined in WA, the state does have substantial deposits, which will now get more prominence in companies’ exploration and stgelopment plans. The world’s largest producer, Toronto-based Cameco Corp, and Mitsubishi last month (aug) finalized the purchase of the Kintyre project from Rio Tinto for US$495 million. Kintyre was last explored in the 1980s when eight deposits were identified. BHP Billiton holds the Yeelirrie deposit in WA and Paladin has the Manyingee deposit there. Toronto-based Mega Uranium Ltd holds the Lake Maitland deposit, discovered by Asarco in the 1970s.

Some stocks with prospects in WA had already been rising on speculation of a change of government and Toro Energy Ltd and Energy and Minerals Ltd were among those to jump on September 15 after the election result was decided. Toro is completing a pre-feasibility study on its Wiluna project, one of the more advanced of the WA projects and said after the election result it would focus on enhancing the resource. Energy and Minerals holds the Mulga Rocks Deposits, which were explored by a Japanese-government owned uranium explorer in the 1980s.

Australia, Canada and Kazakhstan account for 50 per cent of global production, so Canadian and Australian companies tend to dominate the industry and are often listed on both the Toronto Stock Exchange and the ASX. Many of the companies also have projects in Africa, where Niger and Namibia are significant producers.

Considerable exploration work is being done here with some encouraging results but the local explorers are years from opening a mine and although demand for nuclear-generated electricity is growing, so is the supply of uranium. The Australian Bureau of Agricultural and Resource Economics (ABARE) has forecast that global mine production will rise 18 per cent this year as new mines come on stream and existing ones are expanded but that demand will remain steady. The only growth is coming from Asia, which will increase global generating capacity by around 10 per cent a year over the next two years, mostly from new reactors being built in China, Japan, India and South Korea.