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No change expected in uranium prices

The prices for uranium will remain at current levels due to a number of factors including the Japanese government’s reluctance to restart their nuclear reactors after the Fukushima accident, says Romé Mostert, an analyst at Simonis Storm Securities.
“In recent months we have definitely seen a decline in demand for uranium as a result of the Japan Tsunami and the Fukushima accident. The Japanese government have been reluctant to restart their nuclear reactors following routine maintenance as requirements have become more stringent. It is expected that this will continue to result in a build up in inventories. This alongside uncertainties with regards to German inventories will dampen spot market demand and as a result we can expect prices to remain at current levels,” said Mostert.
He added that on the positive side, the Chinese government has placed its first order for nuclear units since they halted new projects following the Fukushima disaster.
“We expect a surplus in the uranium market, on the back of continuing highly enriched uranium (HEU) agreements and growth in production to keep the uranium price at current levels in the short to medium term,” Mostert told the Economist.
Werner Ewald, project coordinator at Bannerman Resources, expressed optimism regarding the growth of the uranium market.
“The outlook for the uranium industry is positive. The fundamentals of nuclear power are robust. Many analysts recognise that uranium fundamentals are also strong. For Namibia, this should translate into increased mining and exploration investment over the next few years,” said Ewald in an interview with the Economist.
Bannerman is scheduled to complete the Etango Definitive Feasibility Study at the end of March and will be continuing to invest in exploration and project development activities, such as an on-site pilot plant, he added.
The producing mines in the country are still profitable at the US$50/lbs mark, while the feasibility of exploration companies was however impacted by the drop in the uranium price, Mostert said.
“The existing (producing) mines in Namibia are still profitable at the US$50/lbs mark. However, these mines were impacted by issues other than the uranium price which created the low base. These mines have managed to produce profitably at prices significantly lower than the US$50/lbs as they are hedge against short term volatility with forward uranium contracts, thus it is safe to assume that the drop in the uranium price will not lead to a contraction in Namibia’s uranium sector.
“The feasibility of exploration companies was however impacted by the drop in the uranium price. In my opinion some of the uranium exploration companies are “marginal suppliers”, meaning that they are profitable at a spot price of US$60/lbs, however at US$50/lbs the mine does not make economically sense,” Mostert further said.
Uranium production decreased by 18.7% in the first 10 months of 2011 in comparison to 2010.
According to Mostert, apart from the Fukushima disaster and its consequent impact on the uranium spot price, the Namibian uranium exploration mines were also adversely impacted by the Ministry of Finance’s proposed amendments to the tax laws and introduction of an export levy.
“These amendments would have made a significant impact on the profitability of existing and probable mines and potential dividends paid out to foreigners. The unexpected nature by which this proposal have been introduced have increased the risk associated with Namibia from a foreign investment perspective and ultimately increased the required return that investors demand before they will inject capital into Namibian projects,” he said.
Mostert said a continuous drop in the uranium price will not bode well for future production increases, particularly because most of the Namibian exploration mines are marginal suppliers.
“Basically the lower potential revenue on the back of lower uranium prices (due to the Fukushima incident) and the higher required return on the back of the proposed tax amendments have decreased the net present value of the uranium projects and decreased the probability that they will get the “go-ahead” signal in the future,” he concluded.

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