Uranium Sees Signs of Strength, M&A

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Includes: CCJ, DMLCF, HTHXF, LEU, NUURF, URG
by: FP Trading Desk

After six weeks of weakness, the spot price for uranium is starting to show signs of strength. Market watchers UxC and TradeTech have reported that low priced material looks like it is cleared from the market, at least for now.

“This has purportedly swung the pendulum back into upward price territory,” said Raymond James analyst Bart Jaworski. He noted that Uranium Intelligence Weekly (UIW) is more bearish, with its spot price declining to US$46.88 per pound this week from US$48.03.

The outlook is marred by a potential Department of Energy sale of US$150-million to US$200-million (or roughly 3-4 million pounds) worth of uranium annually to fund decommissioning at its old gaseous diffusion plant in Portsmouth, Ohio.

“Although it is unclear whether these sales fall within the DOE’s already announced inventory disposition plan, we suspect they do (if not, they represent a radical departure from DOE’s pledge not to adversely impact the market),” Mr. Jaworski said in a research note.

This follows the DOE’s refusal to provide USEC a US$2-billion loan guarantee for its American Centifuge Program in Piketon, Ohio. This setback was a big surprise to many and could translate into higher spot uranium prices over the medium term, the analyst said.

“Generally, less enrichment means higher enrichment (SWU) prices, which means utilities would prefer to use less SWU and more natural uranium to produce the same amount of fuel.”

With USEC engaging outside advisors to evaluate its strategic alternatives, Mr. Jaworski thinks Cameco Corp. (NYSE:CCJ) could be a potential suitor. Meanwhile, his top picks in the uranium space are Denison Mines Corp. (OTC:DMLCF), Hathor Exploration Ltd. (OTC:HTHXF), Ur-Energy Inc. (NYSEMKT:URG) and Nufcor Uranium Ltd (OTC:NUURF).