uraniumNATHAN DENETTE
Uranium prices have shot up in the past six months and few people have noticed because agricultural products and precious metals have garnered so much attention. Now that uranium producers are reporting impressive quarterly results, analysts are shoring up their support.
"With the mine supply gap and China's ever increasing plans for capacity build-out, we believe that investors cannot afford to miss this," noted CIBC World Markets analyst Ian Parkinson.
The "this" he refers to is a skyrocketing spot price. Uranium hit a near-term low of $40.50 (U.S.) per pound in March, 2010, and has since rebounded to $73 per pound as of January, 2011. That's an 80 per cent increase.
More important, he thinks the rally has legs. "While such a dramatic swing as was seen in 2000-2007 is most likely not in the cards due to a different investment and economic climate, a rise driven instead by supply and demand fundamentals like that in the 1970s may be possible."
As is common with most commodities, any mention of uranium over the past few months was tied to Chinese demand -- and for good reason, too. Deals like Cameco's long-term supply contract for 29 million pounds with China Guangdong Nuclear Power Holding Co. are impressive.
But supply is at the heart of the current trend, TD analyst Greg Barnes noted. Energy Resources of Australia's closed its mine processing plant because of excessive rain, Areva pushed back the first production from its newest mine to 2013, and mine supply growth from Kazakhstan is slowing.
And on the back of that, demand is only growing. China currently has 26 operating reactors and wants to own more, while Cameco Corp. , whose quarterly numbers just blew analysts' estimates out, believes that global uranium demand should increase to approximately 230 million pounds per annum by 2019. That's a compound growth rate of about 3 per cent.
For those reasons, CIBC has slapped a spot price target of $90 on uranium for the end of 2011, and TD's is in the same ballpark at $85.
Tim Kiladze