The pending re-start of nuclear reactors in Fukushima-impacted Japan – expected to commence from around April this year – should have a marked upwards pressure on the current global spot price for uranium, according to Australian uranium developer, Toro Energy. Also from the second day in Adelaide today of the Paydirt 2012 Uranium Conference, A sector wide analysis of 60 ASX-listed stocks with uranium interests says the market shakeout in the uranium and nuclear energy areas in the past 12 months has created significant equities value going forward.
Toro Energy’s Managing Director, Greg Hall, said the short-term spot price had been impacted primarily by the temporary uranium inventory overhang resulting from Japan’s “plant shutdown and safety stress checks” approach in the wake of last year’s tsunami incident. “This inventory overhang will start to be eliminated when Japanese reactors commence re-starts – anticipated in April 2012,” Hall said. “The Japanese Government is committed to re-opening plants as only two of its 55 reactors are operating and it is facing increasing country economic and production issues 12 months on from Fukushima as manufacturing and industrial plants cannot source sufficient electricity. This strengthening of the price will then become a welcome inclusion to the very obvious continuous and growing demand for uranium globally.
“This demand is expected to grow by a further 100 Mlb plus per annum by 2025 off the 2011 total uranium demand of 170 Mlb – so this industry is far from dead as some pundits would have the market believe. In fact, it is becoming quite the reverse as a few equities analysts are now starting to factor in.”
Hall said the uranium demand growth was no better evidenced by the fact the economic powerhouses of China, South Korea, India and Russia together comprised 75% of new reactor construction – a build rate that would underpin fresh mine supply for the next two to three decades at least. “What also has been ignored in the post-Fukushima information trail is that in addition to events in Japan, the supply squeeze has been exacerbated by a number of announced delays in 2011 to major uranium project developments. This has generated a market over-estimation of uranium supply coming through the forward pipeline.
“This over-estimation has been to such an extent that some market forecasters are now suggesting the incentive price for medium term uranium projects is at least 50% above the current spot price for uranium,” Hall said.
“And all this of course while new global uranium mines are taking longer to bring on-line – mostly due to approval timelines, technical issues, political issues, costs and finance. Not surprisingly, only a few mines around the world will be ready to fill the demand gap from 2014 onwards – Toro’s Wiluna uranium project in Western Australia intends to be one of these.”
Toro’s wholly owned Wiluna project, with a 54 Mlb, is anticipated to receive government approval decisions by mid this year. The company has already conducted successful trial mine and full pilot process plant testwork at Wiluna, has process engineering design and feasibility studies underway, is developing project financing options, and is planning construction and commissioning through 2013 with first uranium sales in 2014. Hall told Conference delegates Toro was anticipating a financing of around A$300 million for Wiluna’s development and commissioning of which about one third or $100 million could be debt funding. The remainder will most likely be a combination of joint venture partner and equity market.
The potential for Australian uranium stocks to do better will be continuously enhanced in line with forecast growth in global electricity demand and the wider inclusion of nuclear power in countries’ energy mix. Addressing the conference, Martin Place Securities Head of Research, Greg Burns, said the sector suffered in 2011 through concerns over the global economic outlook coupled with the Fukushima nuclear power plant incident – driving down the share price of domestic uranium companies.
“However, in our just completed analysis of the 60 ASX-listed uranium plays, their potential needs to be benchmarked against the fact electricity demand will grow by around 67% to 2030, in an environment of public and government expectation to reduce carbon emissions – plus a supply pressure point for uranium,” Burns said. “In our view, the Australian listed uranium sector therefore offers amazing value. The players offer capital appreciation from current depressed levels through current production, future production potential and opportunities in corporate rationalization of strategic uranium deposits.”
Burns said that in its analysis, there were some fundamental drivers for backing an upside in Australian listed uranium stocks. “Since 1990, electricity demand has grown 3% per annum with nuclear power producing 14% of global power generation,” he said. “Nuclear power provides more than 21% of electricity on OECD countries, but only 1.8% to date in China so the growth potential there is obvious. Nuclear power generation was 2,630TWh in 2011 from 434 reactors, consuming 73,800 t of U₃O₈. Yet that U₃O₈ usage is set to explode, growing to 97,700 t by 2020 from 500 reactors – a 17% rise – lifting to 158,400 t by 2030 from 820 reactors – a rate that represents an 85% hike on current usage. In addition, the Megatons to Megawatts program which uses ex Russian military uranium supplies, is due to conclude next year and combined with the fact that the Fukushima incident only caused a 2% cut in global capacity, all contribute to an expected strong future demand for freshly mined uranium. Australia can help fill that uranium demand cycle.”