A tunnel at Cameco's Cigar Lake uranium mine in northern Saskatchewan
A year after the worst nuclear disaster since Chernobyl raised a red flag about the future of atomic power, uranium explorers and producers are starting to regain confidence in the industry's long-term outlook.
Despite a sluggish spot price and fears that Japan might not restart the 52 nuclear reactors it has shut down since last March's Fukushima meltdown, money is starting to flow back into uranium equities.
Shares of Cameco Corp , Canada's No.1 producer, are up some 20 per cent since the beginning of the year, while development-stage companies such as Ur-Energy and Uranerz Energy have both risen some 22 per cent.
Those valuations are still well below their 2011 peaks, but confidence is mounting on evidence that the Fukushima disaster has not swayed Asia's fastest growing economies from aggressive plans to boost nuclear capacity over the next decade.
China, India, Russia and South Korea remain committed to aggressive programs that could foster the kind of growth last seen in 1970s, when oil price shocks pushed the United States, Japan and France to expand their use of nuclear power.
"There's no doubt in my mind that growth is nuclear's future," Amir Adnani, chief executive of Uranium Energy Corp , said at the Prospectors and Developers Association of Canada conference in Toronto. "This is a very viable sector and industry to be in."
That said, the mood is more sober than it was last year, when dozens of companies promoted new deposits from Argentina to Zambia ahead of what they termed a "nuclear renaissance."
"We're still only a year after Fukushima," said Adnani. "You can't downplay the negative impact that it had on the industry and no one can say that we're completely out of the woods."
All told, even with Germany and Italy backing away from nuclear, global demand for uranium is expected to rise by nearly 50 per cent to 265 million pounds annually from a current 178 million pounds, according to BMO Nesbitt Burns estimates.
And risk-wary investors, who last year watched uranium companies lose half their value or even disappear completely, are still proceeding cautiously, as the near-term outlook for reactor fuel remains cloudy.
"You have had some reactors shut down, particularly the ones in Germany, and you have had virtually all the Japanese reactors, once they go down for maintenance, not come back," said Dahlman Rose analyst Anthony Young.
"So from a supply-demand perspective, demand has certainly decreased versus where we were this time last year."
With eight reactors offline in Germany, and just two of Japan's 54 reactors in operation, worries are mounting that surpluses could flood the spot market.
That is dragging on the uranium price, which fell from more than $70 (U.S.) a pound to $49 in the aftermath of Fukushima, and has held at $52 for the last few weeks.
"If you have a shorter-term view, there could be some continued volatility as Germany and Japan figure out what to do with their inventories," said Young.
"But I think those would be short-term dislocations," he added. "If you have any sort of time horizon – 12, 24, 36 months – our sense is that uranium prices will be higher and that should be reflected in the equities."
Japan remains the wildcard. The world's No. 2 uranium consumer is still mulling its post-Fukushima energy policy as it tries to balance concerns over aging atomic plants and the energy demands of the manufacturing sector.
"If Japan doesn't restart its reactors, then the tightness in the market is unlikely to come," said BMO analyst Edward Sterck. "The market is likely to be well supplied for a number of years."
SUPPLY CRUNCH
But a supply deficit could develop if Japan does restart its reactors as Sterck and other analysts expect.
Current global demand for uranium is about 178 million pounds a year, including some 140 million from mine production. The rest is from downgraded weapon grade uranium and stockpiles.
In 2013, Russia will stop selling downgraded uranium into the market, as its "Megawatts for Megatonnes" pact ends. That means 24 million pounds of uranium, or about 13 per cent of global supply, will disappear.
And projects that were in development prior to Fukushima have been delayed or canceled, as the low spot price has made it more difficult to finance risky mines.
"I think, in terms of new production, we're likely to see further delays to new projects," said Sterck.
With more than 60 new reactors currently under construction around the world and dozens more planned for the next decade, further delays could lead to a serious crunch in the mid-term.
"We've only got to have some production not come onstream as expected, or perhaps a flooding event at an open pit mine somewhere in the world, and I think the market could be tipped into undersupply," said Sterck.
NUCLEAR FEARS
While sell-side analysts see an bright future for uranium, those on the buy side are less certain, at least not in the near term.
Charles Oliver, a senior portfolio manager with Sprott Asset Management, was a champion of the uranium industry until a year ago. "I got smacked last year by the tsunami, unfortunately," he said.
Oliver, who co-manages numerous funds for Sprott, says investing in uranium will pay off in the long term. But the risk in the near term is simple too big to ignore.
"It took 30 years for Three Mile Island to leave the memories of people and for politics to adjust their views on uranium," he said. "It could take a decade for the market to warm back up again."