Uranium is always going to stir passionate debate, but it’s a viable energy source that’s increasingly embraced around the world. Today, about 45 nuclear reactors are under construction, with plans for hundreds more. Most uranium oxide is sold on contract prices, but the spot price has weakened considerably in the past three years, and, according to the UxC consulting company, it was trading at $US42.50 a pound in mid February.
Steven Hing, of Novus Capital, says uranium has a bright future as an alternative power source amid a world wrestling with solutions to climate change. “Nuclear power is already popular in France, Germany, Spain, Switzerland and Sweden,” he says. Hing has established a portfolio of uranium stocks that he expects should reward investors over the longer term in response to growing demand. His portfolio of producers and explorers isn’t a recommendation to buy, but rather potential capital growth opportunities for those willing to heighten their risk for return profile.
Hing says Energy Resources of Australia, one the world’s biggest producers of uranium oxide, booked a net profit of $272.6 million for the year ending December 31, 2009. The 23 per cent profit rise was boosted by higher uranium contract prices and rising revenue of $767.8 million flowing from stronger sales of yellowcake. The company expects higher maintenance and stgelopment costs at its Ranger mine in the Northern Territory to impact earnings in 2010, but forecasts production and sales to be broadly in line with recent years. The company’s long-term price indicator is strong, which Hing says paints a bright outlook for producers. Hing says Rio Tinto owns 68 per cent of ERA, which boosts confidence among investors. “ERA is a big player in the uranium space today and tomorrow – it produced more than 5200 tonnes of uranium oxide in 2009” Hing says. “It has estimate reserves of 150 million tonnes of ore for about 150,000 tonnes of uranium oxide.”
Paladin Energy produced a record 987,310 pounds of uranium oxide for the December quarter. Its Langer Heinrich project in Namibia achieved stage 2 production levels, with a 36 per cent increase over the September quarter. Ramp-up at its Kayelekera mine in Malawi was slower than expected, but rapidly improving. Hing says Paladin appeals as a relatively low cost producer with plenty of resource and potentially more export markets. He says the Langer Heinrich project has an indicated resource of 56 million tonnes of ore for 32,800 tonnes of uranium oxide. The project’s third stage should be producing 5.2 million pounds by late 2010. Hing says Paladin recently acquired Valhalla, which holds uranium tenements near Mt Isa in Queensland. “Paladin has a strong foothold in Africa and has plenty of good ground to mine,” Hing says.
Australia has about 30 per cent of the world’s known uranium reserves and about 15 per cent of the globe’s electricity supply is nuclear powered. Australia produces uranium entirely for export markets, and countries must only use it for generating electricity. BHP Billiton’s multi-mineral ore body at Olympic Dam in South Australia produces uranium and has massive reserves, but Hing says you wouldn’t buy BHP Billiton for uranium when it produces so many other commodities. The Beverley mine in South Australia, owned by US-based Heathcote Resources, also produces uranium, but Hing expects more mines to open in future to meet global demand. “By 2015, industry forecasts show uranium demand again exceeding supply as existing mines are depleted,” Hing says. “It’s a great time to be a nuclear power station builder, or indeed a uranium miner or refiner.”
However, outside the big producers, Hing stresses the risk/return equation rises significantly as uncertainty can surround company performance in a global sector laced with politics. “Uranium is one mineral where the investor must take a strong view backed by a stomach for risk,” Hing says. But the right investment can generate immense wealth as shown by Paladin when the share price rose from 5c on January 1, 2004 to $3.66 on March 10, 2006. The share price has been as high as $10.80 on April 10, 2007.
Black Range Minerals is an exploration company focused on growth through acquisition, exploration and stgelopment. Hing says Black Range is moving its high-grade Taylor Ranch uranium project in the US state of Colorado towards production. Hing says the company has a delineated JORC (Joint Ore Reserves Committee) code compliant resource base of about 8.9 million tonnes of ore for 23.5 million pounds of uranium oxide. The company has interests in three other uranium projects in the US. Hing says the company has investment potential as it makes the transition to uranium producer at the Taylor Ranch project.
Hing says Mintails Limited proposes to recover uranium from surface tailings resources in South Africa. The mining tailings are located on the West and East Rand areas of South Africa’s historic Witwatersrand Basin near Johannesburg. Hing says the JORC resource inventory on the West Rand includes a uranium resource of 273.5 million tonnes of ore for 25.14 million pounds of uranium oxide. He says the company’s remaining gold resource at West Rand is 316 million tonnes for a gold content of 3.086 million ounces. Hing says Mintails should benefit on higher gold and uranium prices, but the opposite also applies.
Hing says while there’s considerable resistance to the nuclear power argument due to the dangers of radiation and the difficulties of disposing nuclear waste, uranium-based fuel produces few emissions and may relieve climate change. “It’s also a cheaper alternative than clean coal and clean gas,” he says.
Hing says other listed uranium stocks investors can consider are Extract Resources, Toro Energy and Bannerman Resources. Extract’s primary uranium focus is in Namibia, Africa. “This producer’s principal asset is its wholly owned Husab uranium project, which contains uranium at Ida Dome, Hildenhof and Rossing South,” Hing says. Toro Energy focuses on uranium exploration in Australia and Africa and it’s total resource is 21.27 million pounds. Hing says Toro has several projects near Paladin’s Langer Heinrich discovery in Namibia, and retains the option to buy the Napperby uranium project in the Northern Territory from Deep Yellow. Bannerman Resources is a Perth-based uranium explorer and mine stgelopment company, with interests in two properties in Namibia and several properties at Botswana.
|Company||ASX Code||Share Price Close February 19, 2010|
|Energy Resources of Australia||ERA||$18.93|
|Black Range Minerals||BLR||4.6 cents|
|Mintails Limited||MLI||3.3 cents|
|Toro Energy||TOE||12 cents|
|Bannerman Resources||BMN||53 cents|
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