(FCU-T) Uranium Industry update from David Sadowski with Raymond James
All Locals Approvals in Place for 1st Japanese Restarts
Late last night (N.America time), prefectural councilors in Kagoshima voted in favour of restarting the Sendai number 1 and 2 reactors at an emergency 3-day assembly ( news link) Municipal council members voted in favour of the restart last week This means all local approvals are now in place - all that is left is final operational safety checks by the regulator NRA and utility Kyushu can restart the units We have been waiting for this moment for a long time We think restarts in Japan will reduce the threat that Japan's utilities will dump their uranium inventories into the market (>100 Mlbs), which should serve to de-risk the space for investors and spur utilities outside Japan to resume contracting, supporting prices With the Sendai units back online in January or February, this should expedite the process to get even more reactors operating, now that both the utilities and NRA are familiar with the approval pathway Recall, we conservatively model one-third of the fleet online by 2018, but most pundits are looking for two thirds Big Uranium Price Move Last Night
Moving to the uranium price, it vaulted higher yesterday - jumping US$1.44 to US$39.25/lb - the highest level in 16 months. This is the biggest daily jump since the intense volatility seen immediately after Fukushima (Mar-2011). This move is likely a result not of the restart approvals, but rather a resurgence in nuclear utility buying interest - we are hearing that several utilities are in the market looking for supply.
Return of Utilities - Sign of the Bottom
Multiple industry contacts have indicated that we will see a wave of new contracting in 2015. This is important as utilities have been mostly absent from the market since late-2012 (contracting levels have been extremely low) - a big part of why the price dropped from the mid-US$40s to US$28/lb. But more buying with Japan less of a dumping threat, combined with reduced spot supplies should squeeze the market and continue to put upward pressure on prices. Recent reductions in spot supply include: Kazakhstan, which announced a y/y drop in 3Q production for the first time in many years Uzbekistan signing long-term contracts with China and India, diverting material away from the spot market Shutdown of Paladin's Kayelekera China's 25% off-take agreement with Paladin's Langer Heinrich US ISR producers pulling back on output Rio Tinto (Rössing and Ranger) and BHP (Olympic Dam) - both typically big spot sellers - producing much less y/y And UPC, which is continuing to buy on the spot market and recently filed a $200 mln shelf so that it can buy significantly more Recall, spot uranium can move extremely quickly because it is such a small market (only ~40Mlbs/yr volume) - in the past we've seen monthly jumps of over US$10/lb - and until recently, the equities have exhibited a strong correlation with spot Accordingly, though it contrasts somewhat with our price deck (see industry report ), we believe the recent rise in spot prices (nearly US$40/lb, up from US$28) is likely to continue in 2015 We strongly recommend buying the top quality uranium equities heading into 2015
David Sadowski| VP Equity Analyst, Mining | Raymond James Ltd.
Direct 604.659.8255 | Mobile 604.562.7519 | david.sadowski@raymondjames.ca
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