Uranium Companies Poised for a Comeback

This year has brought uncertainty for the uranium sector. Since the tsunami and subsequent radiation leaks in Japan, developers and investors are questioning the best steps moving forward. In this exclusive interview with The Energy Report, Edward Sterck, an analyst with BMO Capital Markets in London, updates us on the sector's status and offers advice on the best companies to support in the coming months and years.

The Energy Report: Edward, let's quickly sum up 2011 for uranium. Spot prices for yellowcake have fallen from a high of around $74 a pound (lb.) in January to around $51/lb. now. Most of the decline can be attributed to the tsunami in Japan that caused radiation leaks at several reactors there. After the Japanese problems, chatter started about substituting thorium for uranium in nuclear reactors. Then negative long-term policy decisions started trickling in from Japan, Germany, Italy and Switzerland. Your long-term uranium price of $60/lb. makes you sound less-than-bullish on the sector. What, if anything, is going to pick up the uranium sector, dust if off and send it upward again?

Edward Sterck: The biggest driver is likely to be the uranium price. I haven't actually changed my uranium price forecast post-Fukushima because I had a conservative price estimate previously with a long-term price of around $60/lb. in real terms. But in terms of potential positive catalysts, the main thing needs to be reinforcement of positive sentiment from China once it announces that its safety review will allow it to continue to license new reactors. I would also like to see some buying picking up in the spot markets from organizations such as China Guangdong Nuclear Power Group and China National Nuclear Corporation. Those are the things that the market needs to see before belief in the uranium space returns to investors' minds.

TER: August is typically a slow month for uranium sales, but what about September and October?

We usually see volumes pick up in September and October. I think we'll see the same this year as well although a couple of things are overhanging the market at the moment, making utility fuel-procurement officers a little more cautious on the spot market.

The first is that some Department of Energy material still has to be liquidated into the market. It's not a significant quantity, but fuel-procurement officers may be waiting to see how that plays out before committing to purchases. There are also fears in the market that Germany or Japan may liquidate inventories. Obviously, that would be to fuel-procurement officers' benefit. That's one of the reasons they could be holding off as well. It's a small market and prone to sentiment. If anything, I think Germany and Japan would probably look for bigger buyers rather than just selling piecemeal into the open market, potentially through block sales to countries such as China.

TER: You talked about whether China will license new reactors and move forward with its nuclear program. The country wants to boost power output by 45 gigawatts by 2015. Is there any path to that other than nuclear? (more)