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Japan's Tsunami Crisis Creates Uranium Opportunities

By: The Energy Report and Philip Williams

-- Posted Tuesday, October 11 2011 | Digg This ArticleDigg It! |

The uranium market is still shell-shocked from the tsunami in Japan and the resulting anti-nuclear backlash. But Philip Williams, vice president of business development for investment firm Pinetree Capital in Toronto, is urging investors to dust themselves off and start shopping. In this exclusive interview with The Energy Report, Williams discusses strong fundamentals that are still in play and upcoming catalysts could boost suffering uranium equities this year.


The Energy Report: Phil, when we talked in February, you believed the spot price for uranium would reach above $100 a pound (lb.). Obviously, much has happened since then, including various antinuclear energy policies from European governments, notably Germany. Given these events, why should anyone even put a dime into uranium?

Philip Williams: Despite the events at the Fukushima plant, the first reason to invest in the sector is that demand fundamentals are still in place. Notwithstanding what we're seeing in Germany and Japan—and maybe to a lesser extent Switzerland—we're still seeing major countries driving their nuclear build-out on pace with continued growth in the space. All of the main driver countries, such as China, India, Korea, the Middle East and Russia, have all reaffirmed their need for nuclear power in their energy mix.

Since the accident in Fukushima, 10 reactors have stopped operating out of 443. Reactors under construction have increased by three and there have been three new starts. The planned reactor base has gone up by 13 from 142, and proposed reactors increased by 19 from 322.

Also, uranium equities are very cheap. As for the uranium spot price itself, although we've seen it rise and fall dramatically, it is still well above where it was in 2005. We're getting closer to the original conditions that drove price increases, specifically the end of the HEU program, which currently fills the gap between primary supply and demand.

TER: What is your outlook for uranium through 2012?

PW: I think I'll take a lesson from my last prediction and forego a price forecast, but I certainly think the price is going to increase. It's sitting in the low $50s/lb., but it's possible we could be up to $60/lb. by the end of the year. Next year, I expect volatility in the price.

The price should go sideways, trending up between now and the end of next year. I believe there is still potential for pre-Fukushima levels. Chinese buying was the driver to push prices close to $70/lb. There is a possibility that they will come back to the market at some point. As they develop more reactors and get closer to construction, they're going to build inventory, and they'll buy a decent slug of material. That could be a catalyst to take the price even higher, with the possibility for a spike.

TER: What things do you believe investors should know about investing in uranium companies?

PW: The number-one thing that people should know is that this is a very hard sector for juniors. Time and time again, companies that are developing projects get delayed, politics get in the way or they have technical challenges. But this also speaks to the opportunities.

There are no easy projects in the uranium space. On one hand, this means supply shortages are a definite risk, in which case the price will move ahead. Investors need to pay special attention to jurisdictions. There are pro-uranium jurisdictions and there are anti-uranium jurisdictions. Projects can and will move ahead on that basis. Finally, consider where companies are in their development timeline, keeping in mind that timelines are long in this sector.

The most fundamental thing that investors should understand about investing in uranium is that these are strategic resources in the sense that the product is critical to run the fleets of reactors around the world that keep the lights on.

TER: Have you added to your uranium positions in the lows since the tsunami, or are you sitting tight with cash in hand and waiting for further market weakness?

PW: We've selectively added to our positions, adding quite a few last summer through the beginning of the year as the price of uranium rebounded to the $70/lb. level. Our positions are sizable, north of 10% in a number of uranium companies. We'll continue to be opportunistic, looking for cheap opportunities. As people come back into the junior resource market, we'll be there and we'll continue to add on the way up.

TER: Wyoming is undergoing something of a renaissance in uranium exploration because it's one of the only spots in the U.S. where uranium is prevalent in economic quantities. Is state government going to remain friendly to uranium exploration? Given that there are so many companies looking for uranium, will Wyoming become more selective in its permitting process?

PW: I don't think the government wants to limit the amount of permits. I was recently in Casper, where I attended some company presentations and talked to locals in that area. They're very much pro-development. They'd love to have the jobs and the benefits this industry offers. They're not looking to limit the number of mines, but want to make sure that all projects clear very strict hurdles. That's the reason why so many companies are there. Other state governments don't have the same level of conviction about helping these projects advance. Wyoming is a great jurisdiction.

TER: Excellent. Thank you for your time.

Philip Williams joined Pinetree Capital in January 2009 and was appointed to the position of resources analyst and promoted to vice president of business development. Williams brings almost 10 years of financial market experience to the company. Prior to joining Pinetree, Williams spent five years working for several institutional brokerage firms in the equity research department. Most recently, he was a uranium analyst focused on companies with advanced development projects in Australia, the U.S. and Namibia.

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-- Posted Tuesday, October 11 2011 | Digg This ArticleDigg It! |

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