-- Posted Tuesday, July 20 2010 | Digg This Article | Discuss This Article - Comments:

You don't hear a lot of talk about uranium these days. It's just not as sexy as gold or silver. But with a host of reactors slated for construction, the sector is rife with opportunities. Haywood Securities Analyst Geordie Mark visits numerous uranium projects each year, researching plays at all levels. In this exclusive interview with The Energy Report, Geordie tells us why he's given "sector outperform" ratings to no less than 11 companies. It could be the most comprehensive global roundup of uranium plays anywhere.

The Energy Report: The spot price for uranium was $40.75 a pound on June 21, when the long-term price for uranium was $58—a spread of $17.25, or 42%. What's poised to support a 42% price increase?

Geordie Mark: The spot price actually moved up to $41.75 that night, the first move to the upside in quite a number of months. It's a positive response to demand coming onstream. The long-term contract market is very different from the spot market; and, historically, it's significantly bigger in terms of the volumes that are traded. We're seeing the spot price moving to meet those contract prices going forward. We also think there's a backdrop of significant demand increase due to a delay in the development-stage projects resulting from financial crisis issues and general market conditions.

TER: How far out do you see the spot price and the futures price meeting?

GM: We're looking at a marriage maybe even by the end of 2011, with a spot price of $65 and a long-term move out to $70. We certainly expect to narrow the current gap by that point.

TER: And you said part of that is due to the number of projects coming onstream?

GM: That's right. A few development-stage companies will go into production but, certainly compared to 2007, there have been delays due to equity raising. The number of new projects going forward has been stymied when those projects needed significant capex for development.

TER: At the same time we have a number of new reactors being built.

GM: That's true. Over the last two years, we've seen some significant growth in the number of reactors going into construction. I think something like a 58% increase in the number of reactors are on the planning board; that's a very good size in terms of a steady increase in future demand.

TER: Given the number of reactors being built or scheduled, why haven't uranium stocks performed better of late?

GM: There's a relationship between share prices and general market conditions. Over the last two years, both spot and long-term prices have come off somewhat in response to global financial conditions. I believe spot has come down from about $59 and long-term prices from $80. Company valuations are quite closely linked to commodity prices, so you're basically seeing the relationship to a softening in the commodity price over that two-year period.

TER: So with demand slated to rise significantly, we should see a corresponding rise in share prices of uranium miners and explorers?

GM: That's our target forecast for our covered companies and where we see the commodity price going in response to increasing demand. I think the interesting thing is that increasing demand not only corresponds to the number of new reactors coming onstream but also policies echoing out of Europe regarding extending the life of existing reactor fleets. You're seeing a number of different avenues in which nearer-term demand could increase, which only adds to the longer-term demand of new reactors. There are incremental policy changes toward nuclear power, too, certainly across Europe and coming across through North America. Obviously it's happening in Asia, with China and South Korea furnishing fairly large reactor-unit increases for their countries.

TER: Some of the most promising uranium projects are in Australia. Although the country is considering a new tax on miners, the Mineral Resources Rent Tax (MRRT), a recent change in leadership in the governing party could be a favorable development. Could you update us on the political climate in Australia as it pertains to the uranium players there?

GM: Well, Australia is interesting. It has the world's largest accumulated known uranium resources and the largest uranium deposit—Olympic Dam. At the moment, Australia's federal government allows uranium mining, and other regulations basically filter down state by state. Western Australia is now open to uranium mining. South Australia has an active uranium mining history, as does the Northern Territory. The more recent super-tax proposal, which the Labour Party put forward, created an uncertainty in terms of the value of both current and future mining projects. Julia Gillard, the new Prime Minister, has made motions toward the industry in terms of coming forward and talking about possible modifications to the mining taxation rules. For the time being, it's hard telling how ultimately this will break down.

TER: Thank you, Geordie.

Dr. Geordie Mark, a research analyst with Haywood Securities, focuses principally on uranium companies involved in exploration, development and production. He joined Haywood Securities from the junior exploration sector, where he was vice president of exploration for Cash Minerals, which concentrated on uranium and iron oxide-copper-gold targets across Canada. Immediately prior to joining the exploration industry full-time, Dr. Mark lectured in economic geology at Monash University, Australia and served as an industry consultant. He completed his Ph.D. in geology in 1998 at James Cook University's Economic Geology Research Unit in Australia, specializing in aqueous geochemistry and igneous petrology applied to ore-forming systems.

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-- Posted Tuesday, July 20 2010 | Digg This Article | Discuss This Article - Comments: