Cameco Corp.’s long-term sales to two Chinese buyers near the end of June has helped produce a rally in shares of uranium producers and developers.
Security of supply in the sector has come back into focus as reports continue to surface about Chinese demand and other Asian activity in the industry.
However, access to supply is the real issue, according to David Talbot, analyst with Dundee Securities. He told clients that buyers are competing for stakes in projects and uranium companies, rather than just bids in the spot market.
While production should continue to climb, Mr. Talbot believes that access to uranium may be harder to find, particularly after 24 million pounds of highly enriched uranium goes offline as part of an agreement between Russia and the United States. By 2013, he expects demand to outpace supply.
“Many investors had been waiting for a supply disruption, possibly an act of God, before they expected to see some activity in the space,” Mr. Talbot said in a research note. “But as nuclear power utilities and traders from China, Japan, Korea and Russia gobbling up big companies and uranium projects, and now noticeably cut into supply from Cameco, this leaves less uranium for other end users…”
This includes the United States, which has almost one quarter of the world’s reactor fleet and plans to expand by 31% more by 2020.
China, India and Russia account for 50% of reactor build, with China planning to grow from 11 reactors to 188 by 2020. Russia, meanwhile, has a goal of nuclear power domination, Mr. Talbot said – “it is signing high level trade agreements and going after Uranium One.”
Japan is also stepping up its efforts as companies continue to buy projects. Last week, it announced a new consortium to build and fuel reactors in emerging markets, with legislative and financial support from the government.
Jonathan Ratner