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Uranium price forecast adjusted higher at Cantor Fitzgerald

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Uranium price forecast adjusted higher at Cantor Fitzgerald to reflect cost reality

Thu 2:39 pm by Deborah Bacal

Analysts at Cantor Fitzgerald have increased their long term price forecast for uranium by 10 dollars per pound after positive news from Japan that two more nuclear reactors are expected to receive safety approvals next week.

Along with its long-term price forecast bump from US$70 to US$80 per pound, Cantor analyst Rob Chang also lifted the price targets for several uranium companies, including Cameco (TSE:CCO), Fission Uranium (TSE:FCU), Ur-Energy (TSE:URE), Uranium Energy Corp (NYSE:UEC) and Uranium Participation Corp (TSE:U).

"We have often noted that $40/lb. is the current marginal cost of production for uranium but when all-in sustaining costs are considered (items such as G&A, exploration expenses, and sustaining capital) the marginal cost of production is likely in the $50/lb. range if not higher," wrote Chang in his report released earlier today.

"Combined with the fact that undeveloped deposits are generally lower grade, at greater depth, and/or are located in more difficult jurisdictions, the marginal cost of production required to meet the increase in expected global demand over the next five to ten years will be at least US$80/lb."

The analyst also noted that despite an over 30 percent recovery in the spot price of uranium since last summer, all but Paladin Energy (TSE:PDN) and Uranium Participation Corp dropped since July 7, when the spot price was at a trough of $28.50 per pound.

Spot prices of uranium started the third quarter of 2014 quite strongly, peaking at $44 per pound in mid November, now standing at around $37.81 per pound.

While uranium prices are still far off from their heyday back before the Japanese earthquake and tsunami, new reactors in Europe, the Middle East, and Asia are setting up a longer-term supply-demand imbalance of around 10 million pounds to a number far greater within 10 years, with a longer-term uptick in uranium prices anticipated.

On Wednesday, reports from Japan indicated that the Japanese Nuclear Regulatory Agency will grant safety approval for the Takahama nuclear plant reactors numbered three and four.

Cantor said the previously approved Sendai reactors are forecasted to restart by early this year. "Though the Japanese re-start path has been a slow one, we continue to see these announcements as important events as it signals to the resumption of nuclear power usage in Japan, which currently has all of its 48 nuclear reactors halted," the brokerage firm said.

In the same report, Cantor Fitzgerald lifted its price target on Cameco by 16 percent to $28.55 per share, and reiterated its buy recommendation, noting that the target price bump is related primarily to the rolling of its model forward and the impact of a uranium price forecast that will average US$41.13 per pound of uranium oxide in 2015.

The uranium giant is expected to report fiscal fourth quarter earnings on Monday, with Cantor expecting a top line of $774 million and adjusted earnings of $107 million, or 26 cents per diluted share.

Another uranium miner that benefited from Cantor's uranium price forecast change was Uranium Energy Corp, whose price target was lifted by 28 percent to US$2.75 per share. "The net asset value increase is based primarily on the increase in our uranium price forecast as well as the positive impact of our reduced production estimates for 2015, which at current uranium prices would not be positive for UEC from an all-in sustaining cost perspective," Cantor said.

The company continues to be one of the most sensitive companies to changes in uranium prices seeing as how it is currently stockpiling inventory and is completely unhedged in terms of long term sales contracts, Chang wrote.

In addition, Uranium Participation Corp had its price target raised by 8 percent to $6.95 per share to "capture [Cantor's] full 2015 uranium price forecast."