Fission Uranium Corp T.FCU

Dundee: Japan Reactor Restarts Likely Delayed Beyond Summer

[hockeyguy123]

According to Dundee Securities:

https://app.box.com/s/d7z9n0ykixq47t1inmpj

The Financial Times reported on 2-May-14 that new safety plans for two 'fast tracked' Japanese reactors were rejected by the NRA. First reactor restarts have now been potentially pushed into August (from early Summer). Investors have long awaited Japanese restarts to turnaround both the uranium price and stocks, with most participants considering it the single largest catalyst to a uranium price rebound - and we would agree. Not because it immediately impacts demand, as Japanese utilities have perhaps 4-5 years of inventory, but rather send a signal to the other 90% of uranium users to come back to market. It’s the psychological impact much more than true demand. Massive uncovered requirements loom and reactors must restart in Japan in our view to stem further utility bailouts and potential electricity rate increase. And when contracting returns, we expect the pendulum to swing upwards quite quickly. But investors must be patient - there could be further short term pain before long term gain. Bottom line, perhaps wait until mid-summer or until we see a definitive signal from Japan before jumping headlong into the sector. Although, we do believe there is less downside risk than upside potential.

We reduce our 2014 and 2015 uranium price assumptions: 2014 to US$32.50 from US$42.00/lb; and 2015 to US$45.00 from US$52.00/lb. As a result our targets have dropped across the board for much of our coverage universe (Table 1 & 2). Legacy contracts have been the saving grace of several companies such as Cameco, Energy Fuels, Ur Energy and Uranerz Energy. These companies should be able to weather the storm of low uranium prices to a better degree than peers.

The uranium price seems to be under siege yet again. Uranium stocks have performed well over the past six months (aside from this past month), but spot prices have not followed suit. Last reported price of US$29/lb by TradeTech suggest nine year lows. Equities often front run the uranium price, but the price must also follow suit to sustain that performance.

The issue is short term uranium supply available in the spot market. TradeTech's last reported active supply/demand ratio of 1.3 is the highest level since Nov/12. The result is a dropping uranium price which has called into question the sustainability of the world’s un-hedged production base, and certainly will delay any anticipated new production growth.

Underfeeding secondary supplies likely increasing. How much this is impacting the market isn’t immediately apparent. Underfeeding volumes range anywhere from a couple million to 15 MM lbs or more. And the longer that uranium prices stay down and there is excess enrichment capacity, the longer we expect the enrichers to continue to create excess U3O8.

Delayed Japanese restart means uranium is hitting the market - or is it? Without the utilities requiring nuclear fuel, UxC reports that some of this material has been hitting the spot market. While that may be true, the trading statistics show that there hasn’t been a significant increase in additional uranium supply - just that demand has fallen off a cliff.

The last uranium equity rally was kick-started by long term fundamentals (which have never been stronger). In fact, the late 2013/early 2014 run up in uranium stocks were driven higher on real supply-demand events.

But three factors that prolonged that equity rally have not been sustainable - investor anticipation regarding Japanese restarts, M&A activity, and initial excitement surrounding ultra-high grade uranium discoveries. PLS discovery is no longer new, take-overs have not materialized and restarts have been delayed - all of this fueling the recent downdraft in equities.

BUT, this remains a growth sector - with uranium demand rising between 2.5% and 3.8% annually. There are more reactors under construction, planned and proposed now than even before Fukushima.

And massive uncovered requirements loom. We see 178 MM lbs of uncovered requirements for 2016-2018. With record low term volumes of 20 MM lbs last year means contracting must pick up. And when utilities start to come to market to secure the uranium that it requires, we believe security of supply will ensure that many others follow in close pursuit, particularly as low uranium prices cancel and defer uranium mining projects which will likely impact future mine production expectations.