-- Posted Tuesday, May 3 2011 | Digg This Article |

Japan's nuclear catastrophe sent shock waves through the uranium market, but in this exclusive interview with The Energy Report, Haywood Securities Analyst Geordie Mark explains why the disaster in Japan isn't the end for uranium miners.

The Energy Report: Geordie, take us through what it was like on March 11 once you learned that Japan's nuclear reactors had suffered severe damage in an earthquake and subsequent tsunami.

Geordie Mark: We were all taken aback by the scale of the natural disaster, of which the significance of the event only really translated over the weekend as more data started to become available. The shock of the event hit the markets the next week with uranium stocks taking a significant beating.

TER: Was it more significant than the downturn in late 2008?

GM: Definitely. The results over the entire week were far sharper and more emotion driven than based on tangible knowledge of the events, which are still slowly coming to light. We still don't know everything that has happened at the reactors. We probably won't for quite a while. Those tangible effects are still going to come out. The market reacted emotionally and moved out of the sector in a big way. In terms of magnitude and timeframe, we believe that it was greater than what we saw in 2008.

TER: Did you have to revise a number of your research reports on uranium companies you cover immediately?

GM: We were waiting to find out more information before we reached a more-definitive conclusion about how the events would affect the sector on a short- and long-term basis. We certainly needed more information. Since then, we have revised some of our expectations and our supply/demand scenarios.

TER: Will the impact of Japan's nuclear problems continue to lower uranium prices? Or will the upward price trend that started in the second half of 2010 continue once the market suffers some memory loss?

GM: That's a good question. I think this sector will continue to go forward still. There are a number of reactors under construction today—62 or more. That represents appreciable growth, about 15%.

We've lost some demand, particularly from Japan and certainly from the reactors in Germany that were shut down in response to the accident in Japan, but we believe that there's pricing protection based on supply/demand fundamentals.

TER: So far this year, the long-term price for uranium is up about 11%. When you talked to The Energy Report in October 2010, you said you expected some price pressure in uranium in 2012 and 2013. Has that outlook changed?

GM: No, that's an area that is still very much in play. Those are very large drivers. We expect to see a number of reactors remain offline in Japan, but the pricing pressure is still there. The supply/demand scenario is largely the same. We've lost some demand on the short end of the curve, but we also lost some production. We probably will lose a little expected future supply from the advanced exploration-stage companies that we thought might go into production after 2013. I think there may be project development delays now due to greater regulatory oversight in response to the events in Japan. However, it's still very much the same equation that we saw 10 months ago.

TER: Does that mean that you're going to increase the discount rate on some of those juniors?

GM: I think we'll leave them as they are. The discount rate in the juniors still builds in a certain amount of risk depending on the development and permitting stage of the individual projects. Modification of expected production timelines and dilution expectations in our valuation account for more protracted periods of stakeholder interaction, project scrutiny and regulatory oversight.

TER: The Ranger Mine is being shut down due to fear that severe rainfall could push radioactive water over the edge of a tailings dam and into a World Heritage site in Australia's Northern Territory. Do you see this as a first step that could lead to a push for nationwide ban on uranium mining in Australia?

GM: Activist groups have already called for bans on uranium mining. It is too early to say what the response will be.

TER: Do you have an update on what is happening at the Ranger Mine now?

GM: It extended its shutdown period to the end of July.

TER: What is the regulatory regime like in Québec? That tends to be a pretty favorable jurisdiction for mining gold and base metals. Does the same hold true for uranium mining?

GM: That remains to be tested fully. Québec has a very rich mining history, and international mining surveys place the province high in the rankings.

TER: What is your forecast for prices through the end of 2011 and into early 2012?

GM: There is room for pricing strength going forward. We forecast the price to be $67.50 for uranium spot and about $75 for uranium long term. We still see most of the action coming around 2013 to 2014. There is good fundamental support for the commodity price.

TER: Should investors get into this play now and ride it out until 2013 or 2014?

GM: Value plays do exist for those who have mid-term investment time horizons, as well as short-term time horizons as company valuations are driven around catalysts relating to production growth, permitting progress, resource expansion and discovery. We expect that a number of companies in the uranium sector will enjoy the aforementioned catalysts over the next year or so.

TER: We really appreciate you taking the time for this.

Dr. Geordie Mark, a research analyst with Haywood Securities, focuses on uranium companies involved in exploration, development and production. He joined Haywood 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. Prior to joining the exploration industry, 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, May 3 2011 | Digg This Article |