Uranium Price to recover by End of 2007ENERGY
34% DECLINE SINCE JULY 1
Uranium spot price could regain lost ground by year end - Haywood
Haywood Securities forecasts that, while uranium spot prices will continue to weaken “a tad more,” prices could regain much lost ground by year end.
Author: Dorothy Kosich
Posted: Friday , 24 Aug 2007
RENO, NV -
In an analysis published Thursday, Canada's Haywood Securities predicted that, by year end, the spot market for uranium could regain some of the ground it has lost since the metal reached a high of $136 in mid-June.
Analysts J.W. Mustard and Chris Thompson said the rapid price increase from April to June was generated more by speculative discretionary buying than by a demand from utilities companies.
Currently the spot price has declined 34% to the current $90/lb level. To compound the situation, the analysts noted that "as the utilities seem to have taken a collective summer break, in conjunction with a lack of discretionary buying, the price has a clear negative trend."
"Primary supply/demand issues have not changed over the past few months, and each week brings pronouncements of renewed emphasis on nuclear capacity to solve fundamental electrical needs," according to Mustard and Thompson.
"Perhaps a key insight into longer term trends is the possible impact of the recent spot price decline on those companies either at the advanced stage of development or in feasibility. With the market valuation of individual companies dropping by 35% to 50%, those most affected may curtail some expenditures, leading to a deceleration of project development-ultimately feeding into lower than forecasted long-term growth supply," they noted. "Also some companies seeking equity and debt financing may experience pushback, again affecting their project timelines."
"This, combined with production shortfalls year over year 2005 to 2006 and forecasted for 2007, upward price pressure is likely to persist for a longer period."
Haywood's analysts forecast that "while the spot price has weakened and could weaken a tad more, by the end of the year prices could regain much of the lost ground, setting the stage for a robust 2008 and beyond. With potential brownouts in some areas like India, it is possible that near-term spot could exceed the recent highs."
Meanwhile, Haywood's research found that since July 1, uranium producers have experienced an average 22% decline in equity value, compared to a 32% decline for explorers and a 37% drop for developers.
Canadian uranium miners Cameco (TSX: CCO) and Denison Mines (TSX: DML) have sold off 28% and 33% during the same time period, according to the analysts. Best performing producers during the period were France's Areva SA and Uranium One (TSX: SXR).
The analysts noted that "exploration companies, which participated the most in the upside caused by the rapid uranium price escalation, have corrected the sharpest in recent months. Share price performance within the exploration sector showed weakness even before the uranium spot price topped out at US$136/lb U3O8. "