Uranium firms confident despite Japan crisis
Monday, April 04, 2011
CARRIE TAIT
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CALGARY— Energy Fuels Inc.’s convention booth was crammed with potentialinvestors and investment bankers angling for business at the world’slargest mining convention, an especially welcome buzz given that companyhad recently launched a fundraising drive. The uranium company neededcash, and all was going swimmingly.
But less than a week later,on March 11, the glow from the annual gathering of the Prospectors &Developers Association of Canada in Toronto was immediately snuffed outby Japan’s deadly earthquake and tsunami. With the damagedFukushima-Daiichi nuclear power plant leaking radiation, contaminatingfood and water, and still at risk of a meltdown, the market has souredfor all things nuclear.
Mining is an extremely expensivebusiness, and companies depend on the market for cash. With countriesaround the world re-evaluating plans to build new nuclear power plantsor refurbish aging ones, uranium companies are struggling with financingand growth prospects.
Uranium companies across the board werecrushed in the days after the March 11 Japanese disaster. Shares forEnergy Fuels, for example, closed at 87 cents on March 10; they fell to81 cents on March 11, 59 cents on March 12, and hit 42 cents on March17. Energy Fuels closed at 48 cents Monday on the Toronto StockExchange.
Toronto-based Denison Mines Corp. closed at $3.11 onMarch 10, $3.19 on March 11, and dropped to $2.28 on March 16. It, too,has regained some of its losses, closing at $2.41 Monday. Uranium OneInc. , another Toronto-based player, closed at $5.93 on March 10 and at$4.01 on Monday. Size was no saviour: Industry giant Cameco Corp. , ofSaskatoon, also took a beating, closing at $36.51 on March 10 beforeskidding to $27.73 on March 17; it closed at $29.87 Monday.
Uraniumexecutives accept that their stocks have crashed since the Japanesecrisis, but they expect the price of the metal to rally. The challengewill be holding their companies together to benefit from the rebound.
“Everythingwas going beautifully until we got back from PDAC,” Gary Steele, EnergyFuels’ senior vice-president of corporate marketing, said in aninterview. He added that the company “had a couple long days” decidingwhether to go ahead with its equity and warrant offering.
Thedeal went ahead and closed last Thursday, but Toronto-based EnergyFuels, which desperately needed cash to deal with reclamation bondobligations for a proposed uranium processing facility in Colorado,raised only $11.5-million, down from its $25-million target. Further,the units, consisting of one share and one purchase warrant, sold for 50cents each, about half the original expected price.
Initially,part of Energy Fuels’ financing was to go toward reviving two mines.“Those will just have to be delayed,” Mr. Steele said. “We’ll do some ofthe work, but we cut way back on what our original plan was.”
Evencompanies that have tidy balance sheets and expectations that thenuclear industry and uranium prices will soon perk up are draftingcontingency plans. When the triple whammy of disasters hit Japan,Denison was in the midst of deciding whether to reopen a mine in Utah.High uranium prices made the plan attractive, but the recent pricecollapse – uranium fell about 10 per cent to $60 (U.S.) per poundimmediately after the quake, and is now worth $58.50 per pound – hasDenison pulling back.
“We will be re-evaluating that now,” saidRon Hochstein, Denison’s chief executive officer. Uranium needs to sellfor $65 per pound to make the Utah mine work, he said. “I think it willstill get there, but the startup of that mine may be delayed a bit.”
Toronto-basedDenison has uranium contracts in place for 2011 and 2012 and beyond,and planned to sell roughly 55 per cent of its production on the spotmarket this year. Mr. Hochstein believes uranium will rise above $65this year, but now Denison is considering stockpiling uranium ratherthan move it at low prices. This would allow the company to keep miningat full speed while avoiding punishing prices.
Adam Schatzker,an analyst at RBC Capital Markets, expects the spot price to ring in at$69 per pound in 2010 and $77.50 per pound in 2012, down from hisprevious forecast of $80 per pound this year and $100 per pound nextyear.
Paladin Energy Ltd., an Australian company that listedshares on the TSE in 2005, is still bullish on uranium, despite theevents in Japan. “In the long term, and likely in the medium term, thiswill not have a huge impact,” spokesman Greg Taylor said.
By hiscount, there are 443 nuclear reactors operating in the world, with 62under construction and 156 planned. “What you’re not seeing is a lot ofnew uranium production coming online,” he noted. Mr. Taylor expectsChina and its Asian neighbours to buoy the market, although China hasjoined Germany, Japan, and Russia in stalling expansion and approvalplans for nuclear plants.
Patricia Mohr, an analyst at ScotiaCapital, is in Mr. Taylor’s corner when it comes to new nuclearprojects. “China, India, South Korea and Russia have plans to add theequivalent of 66 per cent of the world’s total nuclear powerproduction,” she wrote in a research note. She believes those countrieswill “almost certainly” move ahead with expansion plans, adding: “TheFukushima-Daiichi event will likely delay rather than derail the‘nuclear renaissance.’”
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