Uranium miners upbeat on China growth
China has almost 30 nuclear reactors under construction and has been steadily approving coastal projects as it seeks to build enough reactors to generate one-fifth of its power from non-fossil fuels by 2030.
In combination with Japanese plans to bring some nuclear plants back online after they were idled following the Fukushima crisis in 2011, this has given uranium a lift. Buying by utilities in the US has provided further support.
Prices for uranium surged more than 30 per cent this year to $44/lb in November, before dropping back down to $38. Still, that is far from the $136 reached in the summer of 2007.
“There’s some movement but I don’t think uranium prices are going to break out of the stalls in near-time,” says Matthew Keane, mining analyst with Argonaut in Perth Australia, who reckons forward prices ranging from the high $40/lb to mid-$50/lb are not high enough to incentivise new supply.
Many Australian uranium mines need future prices in the range of $60-$70, or preferably up to $80/lb, before they can secure the financing they need, Mr Keane says.
Shares in uranium miners have fallen 25 per cent this year as measured by the Global X Uranium ETF.
“It’s a tight capital market scenario right now, though quality projects will still get financed,” Rob Chang, analyst at Cantor Fitzgerald, says. “Uranium prices have to move higher otherwise we’ll have nuclear reactors that have no feed.”
At current levels a uranium deficit is likely by 2020, Mr Chang adds.
However, others are already positioning themselves for an anticipated uranium boom. Chinese private equity firm Hopu, which often acts as a matchmaker for deals by larger state-owned firms, last month bought a 15 per cent stake in debt-laden West Australian miner Paladin Energy for $80m.
“If you want to do something over the next 20-30 years, coal is not the place to be because of the requirement for clean energy in places like China. You end up pointing a big red arrow at uranium,” says Alexander Molyneux, former head of coal miner SouthGobi in Mongolia. He is now running Toronto-listed Azarga Uranium, with uranium projects under development in the US and Kyrgyzstan.
Uranium prices could rise over the next six to 12 months as utilities resume long-term contracting after a two-year hiatus to meet future requirements, according to US financial advisory firm Raymond James.
“With prices well below mine-incentivising levels and a global shortfall emerging at decade’s end, we believe these contracts will be signed at progressively higher levels,” says Raymond James.
Spot prices are likely to be around $40/lb in 2015 and reach a long-term “supply and demand equilibrium” price of $70/lb in 2017, according to its analysis.
In Japan, Prime Minister Shinzo Abe’s election victory is expected to result in the restart of nuclear reactors for the first time since the meltdown of the Fukushima nuclear power plant following a tsunami in 2011.
Mr Abe hopes to restart two reactors at Kyushu Electric Power’s nuclear plant in Kagoshima Prefecture early next year, according to Japanese news agency Kyodo. Another two reactors at Kansai Electric Power’s Takahama power station could also go back online within 2015, the news agency said.
Still, China’s build-out may not be as swift as uranium bulls hope. As coastal sites fill up, a stiffer political fight is expected over inland projects. All were suspended after the meltdown of the Fukushima plant on worries that local water supplies would be insufficient to flood the plants in the event of a similar disaster.
The nation’s ambitious building schedule has seen some slippage, including at the Fuqing plant in Fujian, which is the first to feature an indigenous design by China National Nuclear Corp (CNNC). Control systems have just been delivered for Fuqing 3 and 4, while the first and second units of the plant are in test runs already, an industry source says.
China has already been stockpiling for its nuclear build out, consistently buying more uranium than it needs, according to analysts.
“Whilst uranium prices are likely to rise in the long term we see few near-term positive catalysts, with Japanese restarts and China new builds some time off,” say analysts at Citi in a recent report.
By Lucy Hornby and Henry Sanderson