Dundee Securities comments on the uranium sectorAccording to Dundee Securities:
May 21, 2014
Japan Court Rejects Startup of 2 Nuclear Reactors
Event: Two Japanese nuclear reactors rejected by the court.
Impact: Negative. The courts have ruled against the two Oi reactors – # 3 and #4 – from restarting. This is considered a landmark ruling in Japan, and one of the few times in Japans 40 year nuclear history where anti-nuclear plaintiffs have won against utilities. These are the same two reactors that momentarily restarted in July 2012, despite massive opposition, and then shut down again in September 2013.
This adds further to negative sentiment in the space as now two of 17 reactors that applied for restart were rejected. And these are the first reactors that have been outright denied by the courts post-Fukushima. It’s our view that the operators would be able to rejig plans and come back with new applications, but will likely be at the back of the line for restart.
This does not materially change our view on Japanese restarts. We are still optimistic that up to 2/3 of reactors will restart, but the question is when? We are leaning more towards after summer now, and with such a landmark ruling it’s hard to say what impact this will have on other applications. Despite the ruling, Chief Cabinet Secretary Yoshihide Suga told reporters the government will stick to its policy of restarting reactors that are recognized as meeting the new regulations (which are the strictest in the world).
Stock performance: In our May 6th note we suggested there could be further short-term pain before long-term gain. Since then stocks have sold off further from highs achieved on March 12th… but appear to be finding a bottom. The uranium price is down 29% YoY, and stocks are now down ~8% on average. Bottom line, perhaps wait until mid-summer or until we see a definitive signal from Japan before jumping headlong into the sector. That said, we do believe there is less downside risk than upside potential at this point. Our top picks are still: CCO, URE, EFR, DML and FCU.