Uranium sector returning to full power – Rob Chang
While Germany and Switzerland have made headlines with sudden phase-out plans, world leaders from North America to Africa to Asia have reaffirmed their commitment to nuclear power as a low-carbon, low-cost energy solution. Development plans continue for the industry, and the long-term growth picture shows continued uranium demand. In this exclusive interview with The Energy Report, Rob Chang discusses prospects for both junior and major uranium developers and producers, and which companies could be the next belle of the bidding war ball.Editor’s note: This interview took place on October 24, 2011. Mr. Chang’s comments were made prior to Versant Partners’ engagement on Fission Energy’s financing.
The Energy Report: Thank you for joining us again. What major changes have unfolded in the uranium sector since you last spoke with The Energy Report in June?
Rob Chang: Let’s look at uranium pricing first. The spot price went through the summer doldrums, as it usually does. It dipped slightly but stayed relatively flat since June. It’s down about 3% and is currently in the low $50s. The long-term price declined by about 6%. It was around $68 when we last spoke. It’s now $64. But there has been some good news. Looking at it from a global standpoint, the number of nuclear reactors under construction, planned or proposed has significantly increased. There are currently 565 in various stages as opposed to 553 back in June. We’ve also seen some M&A activity heat up the market.
TER: It sounds like some stability has returned to the sector and long-term prospects remain positive.
RC: I would definitely agree. The prospects haven’t changed in terms of supply and demand. There was a lot of initial negative sentiment toward what happened with Fukushima. Since then, what we’ve actually seen is something that, in my opinion, is beneficial in the long term for the industry in that countries around the world reassessed their nuclear programs. As a result, the overwhelming majority came out saying that they’re fine or that they’re putting in place improvements that will make them better. Outside of the more publicized Germany, Italy and Switzerland news regarding anti-nuclear decisions and phasing out in Germany and Italy-those are the exceptions rather than the rule. For example, Japan’s own Prime Minister said he thinks it’s impossible for Japan to maintain its economy without nuclear power. China has completed safety assessments a month ahead of schedule. Spain has deemed nuclear power to be irreplaceable. And the Czech Republic came out with an energy plan wherein nuclear will contribute 60-80% of the nation’s power by 2050. Overall, the worldwide perception of nuclear energy has been pretty positive.
TER: Looking at the price chart, we’ve had a bottom around $49. Have we seen a permanent turnaround in the price of uranium, or do you foresee it fluctuating in a similar range?
RC: The $49 figure is unnaturally low based on supply and demand fundamentals. In our opinion, long-term spot prices should be closer to $70 in order for supply to match demand. This would also make new mines economic, especially low-grade mines in Africa, for example. What we’ve seen more recently concerns utility buying, which usually occurs in the last quarter of the year. Because utilities weren’t really buying, we saw a lot more volatility than we normally do. Instead, producers became the major buyers, soaking up excess supply rather than selling the uranium they’re producing-it’s actually more cost-effective for them to simply buy off the market and sell it at a higher price, fulfilling their contracts that way. There will always be short-term volatility, especially since uranium is viewed as a high-beta commodity.
No matter how we look at it, we’re going to see uranium and uranium equities higher than they are presently. The key question now is, when will they rebound? Right now the uranium market is negatively affected by the global economic crisis and investors are not willing to take on risk. Once things settle down, the supply/demand fundamentals behind the nuclear industry should take hold.
TER: What’s the general outlook for uranium mining in the U.S. versus Canada?
RC: Mining in the U.S. tends to be a little bit more difficult, given the anti-uranium sentiment in some areas. In Canada’s Athabasca, there has been consistent and well-accepted uranium production for many years. In the U.S. it’s a little bit more difficult. You can see that in Virginia, for example, where there’s been a lot of pushback toward uranium. The regulatory regime is a little more difficult and more protective in the U.S. compared to the Athabasca region.
TER: Would you say the safest jurisdictions are in Canada or overseas at this point?
RC: Yes, but I think the U.S. has some very good resources, strong companies and good projects being advanced.
TER: We appreciate your time today and we’ll look forward to talking with you again.
RC: Great. Thank you.
Versant Partners Analyst Rob Chang has extensive financial markets experience dating back to 1995. He was a member of a five-person team running a multi-strategy hedge fund, a base metals research associate at BMO Capital Markets, a manager of resource funds at a boutique investment management company and an equity analyst covering the global mining sector at an independent investment bank. Rob has an MBA from the Rotman School of Management at the University of Toronto and holds a Chartered Investment Manager designation.
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Article published courtesy of The Energy Report – www.theenergyreport.com
The Energy Report: Thank you for joining us again. What major changes have unfolded in the uranium sector since you last spoke with The Energy Report in June?
Rob Chang: Let’s look at uranium pricing first. The spot price went through the summer doldrums, as it usually does. It dipped slightly but stayed relatively flat since June. It’s down about 3% and is currently in the low $50s. The long-term price declined by about 6%. It was around $68 when we last spoke. It’s now $64. But there has been some good news. Looking at it from a global standpoint, the number of nuclear reactors under construction, planned or proposed has significantly increased. There are currently 565 in various stages as opposed to 553 back in June. We’ve also seen some M&A activity heat up the market.
TER: It sounds like some stability has returned to the sector and long-term prospects remain positive.
RC: I would definitely agree. The prospects haven’t changed in terms of supply and demand. There was a lot of initial negative sentiment toward what happened with Fukushima. Since then, what we’ve actually seen is something that, in my opinion, is beneficial in the long term for the industry in that countries around the world reassessed their nuclear programs. As a result, the overwhelming majority came out saying that they’re fine or that they’re putting in place improvements that will make them better. Outside of the more publicized Germany, Italy and Switzerland news regarding anti-nuclear decisions and phasing out in Germany and Italy-those are the exceptions rather than the rule. For example, Japan’s own Prime Minister said he thinks it’s impossible for Japan to maintain its economy without nuclear power. China has completed safety assessments a month ahead of schedule. Spain has deemed nuclear power to be irreplaceable. And the Czech Republic came out with an energy plan wherein nuclear will contribute 60-80% of the nation’s power by 2050. Overall, the worldwide perception of nuclear energy has been pretty positive.
TER: Looking at the price chart, we’ve had a bottom around $49. Have we seen a permanent turnaround in the price of uranium, or do you foresee it fluctuating in a similar range?
RC: The $49 figure is unnaturally low based on supply and demand fundamentals. In our opinion, long-term spot prices should be closer to $70 in order for supply to match demand. This would also make new mines economic, especially low-grade mines in Africa, for example. What we’ve seen more recently concerns utility buying, which usually occurs in the last quarter of the year. Because utilities weren’t really buying, we saw a lot more volatility than we normally do. Instead, producers became the major buyers, soaking up excess supply rather than selling the uranium they’re producing-it’s actually more cost-effective for them to simply buy off the market and sell it at a higher price, fulfilling their contracts that way. There will always be short-term volatility, especially since uranium is viewed as a high-beta commodity.
No matter how we look at it, we’re going to see uranium and uranium equities higher than they are presently. The key question now is, when will they rebound? Right now the uranium market is negatively affected by the global economic crisis and investors are not willing to take on risk. Once things settle down, the supply/demand fundamentals behind the nuclear industry should take hold.
TER: What’s the general outlook for uranium mining in the U.S. versus Canada?
RC: Mining in the U.S. tends to be a little bit more difficult, given the anti-uranium sentiment in some areas. In Canada’s Athabasca, there has been consistent and well-accepted uranium production for many years. In the U.S. it’s a little bit more difficult. You can see that in Virginia, for example, where there’s been a lot of pushback toward uranium. The regulatory regime is a little more difficult and more protective in the U.S. compared to the Athabasca region.
TER: Would you say the safest jurisdictions are in Canada or overseas at this point?
RC: Yes, but I think the U.S. has some very good resources, strong companies and good projects being advanced.
TER: We appreciate your time today and we’ll look forward to talking with you again.
RC: Great. Thank you.
Versant Partners Analyst Rob Chang has extensive financial markets experience dating back to 1995. He was a member of a five-person team running a multi-strategy hedge fund, a base metals research associate at BMO Capital Markets, a manager of resource funds at a boutique investment management company and an equity analyst covering the global mining sector at an independent investment bank. Rob has an MBA from the Rotman School of Management at the University of Toronto and holds a Chartered Investment Manager designation.
Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.
Article published courtesy of The Energy Report – www.theenergyreport.com
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