Uranium Week: Easter Doldrums
Industry consultant TradeTech’s weekly uranium spot price indicator remains unchanged at US$23.25/lb for the second week running. Heading into the Easter break, buyers and sellers showed a reluctance to shift their prices, resulting in only two transactions being recorded for a total of 200,000lbs U3O8 equivalent.
Utilities remain largely absent from the spot market, leaving only intermediaries and speculators to face off across the bid/ask spread. There is a modicum of interest being shown by utilities for mid and long term delivery contracts, settlement of which may lead to some clearer direction for the spot market.
Meanwhile, TradeTech’s term price indicators remain unchanged at US$28.00/lb (mid) and US$35.00/lb (long). The spot price has to date averaged US$24.00/lb in 2017.
Energy Resources of Australia ((ERA)) produced 1.32mlbs U3O8 in the March quarter, the company reported last week, a slip from 1.33mlbs in the December quarter. Planned mill maintenance impacted on processing volumes.
The company continues to produce uranium only from stockpiled ore at its Ranger mine in Australia’s Northern Territory. Those stockpiles are expected to run out by 2020 and ERA’s mining licence expires in 2021. The extension of that licence would require local indigenous approval, which to date has not been forthcoming, and a decision to progress the Ranger Deeps underground project.
That project is currently under care & maintenance due to the weak uranium price. Even if prices improve, ERA’s two-thirds shareholder Rio Tinto ((RIO)) to date remains unsupportive. At this stage Ranger Deeps appear to be somewhat of a pipedream. It would require a significant rebound in the uranium price to change anyone’s mind, one presumes.
UBS believes the fundamentals for uranium look very positive on a five-year view. In the meantime, ERA’s legacy long term contracts ensured the company received an average US$39/lb for its processed stockpiles in the second half of 2016, having enjoyed a price of US$45/lb in the first half. The company is under obligation to rehabilitate the Ranger above-ground mine site, which it must fund through uranium sales.
Legacy pricing will only trend down in the meantime nevertheless, unless there is a sizeable bounce in the spot price, throwing up a risk that ERA will not ultimately be able to fund the the rehabilitation program through to completion. If not, Rio Tinto has pledged to cover the difference.
If the Ranger Deeps project does not progress, UBS cannot see any value in ERA. With the stock trading at 68c (AUD) at the time of writing, UBS has set a target of 6c and maintains a Sell rating.
FN Arena is building the future of financial news reporting at www.fnarena.com. Our daily news reports can be trialed at no cost and with no obligations. Simply sign up & get a feel for what we are trying to achieve.
The content of this information does in no way reflect the opinions of FN Arena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FN Arena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FN Arena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.