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Looming Uranium Shortage is Good News for Explorers

By: UraniumSeek

-- Posted Friday, June 26 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:

The spot uranium price is once again trending higher, but not fast or far enough to stimulate new supply. Itíll have to do better to help overcome the looming shortfall in physical uranium expected in 2014, says Canadaís largest securities firm, RBC Dominion Securities. 

And of course, this is good news for investors in uranium.  In fact, itís particularly excellent news for investors in junior uranium companies.  Why?

Because the uranium producers, and most of the near term producers, are known entities.  The market knows, to a large degree, what the reserves, costs and production numbers are or will be for the assets in those companies.  And with most of these companies scheduled to be small producers, they have limited leverage to a rising uranium price.

Itís the junior companies who have made a discovery that have the leverage for investors Ė particularly those with large discoveries.

In their Uranium Market Outlook Ė Third Quarter Outlook 2009 issued June 24, RBC Dominion makes two very important points:

1                    the current uranium price is too low to spur new supply to meet future reactor needs.  RBC says the uranium price needs to be at least US$75 per pound to generate the returns needed to incentivize new production.

2                    they are forecasting a large uranium deficit in 2014. There will be a uranium deficit in 2009-2011, but the big one starts in 2014.

There are only a very select few exploration companies that have been able to discover and build sizable new uranium deposits.  Here is a brief list:

Company Name                       Trading Symbol                        Millions of Pounds*

Extract Resources Ltd.             EXT-ASX (Australian)             133.4

Hathor Exploration                   HAT-TSXv                               0

Uracan Resources                    URC-TSXv                             40.7

Forsys Metals                           FSY-TSX                             81.7

Bannerman Resources              BMN-ASX                              101.3

Mantra Resources                    MRU-ASX                              35.9

These companies have large, individual deposits that make them take-over targets for major uranium companies.  Forsys has already been the subject of one attempted take-over. Itís interesting to note that all of them except Hathor are bulk tonnage, regular grade deposits. 

Only Hathor has the high grade deposits that are only found in the Athabasca Basin of Saskatchewan Canada Ė which is where they are.  Hathor does not have a compliant resource, but most analysts give them back-of-the-napkin credit for at least 20 million pounds. 

While Extract has the largest resource in this group, and the largest valuation per pound at $11.71, Uracan has the lowest market cap per pound at 52 cents.  The Australian listed assets consistently get better valuation than those listed in North America.  This indicates the North American market has not yet taken the future shortage into account.  

Of these companies, only Forsysí Valencia deposit has any real hope of being in production by 2014.  The remaining companies do not have a bankable feasibility study, which takes 18 months.  Then permitting and securing the capital funding to build the mine can (and usually does) take at least one year.  Building the mine is usually 18 months.  That takes us to 2014 Ė assuming everything in the process goes perfectly.

But thatís not life.  And that is why RBC goes on to cite supply concerns as a key reason for their view that higher prices are coming in the uranium sector.    RBC now estimates that actual production from 2006 -2010 will lag the World Nuclear Association forecast from 2006 by almost 20 million pounds - per year!

Itís clear that the end users of uranium are also foreseeing supply issues, as both Korean and Japanese utilities have taken equity positions in uranium producers this year.

And just last week it was reported that four U.S. power companies will split US$18.5 billion in federal financing to build the next generation of nuclear reactors, the largest step in three decades to revive the U.S. nuclear industry. The first round of building would add about seven new reactors to the U.S.ís existing fleet by 2015 or 2016, at a likely cost of more than US$40 billion. This could be another catalyst for the long-term price of uranium.

To get new uranium supply ready for 2014, producers and consumers alike need to secure good assets now. Generally, they do that by buying junior companies that have made big discoveries.  This process should keep a bid under the junior uranium companies with promising deposits, and a smile on the faces of their investors.

*According to Canaccord Capital Junior Mining Weekly June 23 2009

-- Posted Friday, June 26 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:

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