* Uranium equities rising again on Asia nuclear programs
* Near-term outlook for nuclear fuel remains cloudy
* Japanese plans remain wildcard in industry outlook
By Julie Gordon
TORONTO, Mar 6 A year after the worst
nuclear disaster since Chernobyl raised a red flag about the
future of atomic power, uranium explorers and producers are
starting to regain confidence in the industry's long-term
Despite a sluggish spot price and fears that Japan might not
restart the 52 nuclear reactors it has shut down since last
March's Fukushima meltdown, money is starting to flow back into
Shares of Cameco Corp, Canada's No.1 producer, are
up some 20 percent since the beginning of the year, while
development-stage companies such as Ur-Energy and
Uranerz Energy have both risen some 22 percent.
Those valuations are still well below their 2011 peaks, but
confidence is mounting on evidence that the Fukushima disaster
has not swayed Asia's fastest growing economies from aggressive
plans to boost nuclear capacity over the next decade.
China, India, Russia and South Korea remain committed to
aggressive programs that could foster the kind of growth last
seen in 1970s, when oil price shocks pushed the United States,
Japan and France to expand their use of nuclear power.
"There's no doubt in my mind that growth is nuclear's
future," Amir Adnani, chief executive of Uranium Energy Corp
, said at the Prospectors and Developers Association of
Canada conference in Toronto. "This is a very viable sector and
industry to be in."
That said, the mood is more sober than it was last year,
when dozens of companies promoted new deposits from Argentina to
Zambia ahead of what they termed a "nuclear renaissance."
"We're still only a year after Fukushima," said Adnani. "You
can't downplay the negative impact that it had on the industry
and no one can say that we're completely out of the woods."
All told, even with Germany and Italy backing away from
nuclear, global demand for uranium is expected to rise by nearly
50 percent to 265 million pounds annually from a current 178
million pounds, according to BMO Capital Markets estimates.
And risk-wary investors, who last year watched uranium
companies lose half their value or even disappear completely,
are still proceeding cautiously, as the near-term outlook for
reactor fuel remains cloudy.
"You have had some reactors shut down, particularly the ones
in Germany, and you have had virtually all the Japanese
reactors, once they go down for maintenance, not come back,"
said Dahlman Rose analyst Anthony Young.
"So from a supply-demand perspective, demand has certainly
decreased versus where we were this time last year."
With eight reactors offline in Germany, and just two of
Japan's 54 reactors in operation, worries are mounting that
surpluses could flood the spot market.
That is dragging on the uranium price, which fell from more
than $70 a pound to $49 in the aftermath of Fukushima, and has
held at $52 for the last few weeks.
"If you have a shorter-term view, there could be some
continued volatility as Germany and Japan figure out what to do
with their inventories," said Young.
"But I think those would be short term dislocations," he
added. "If you have any sort of time horizon - 12, 24, 36 months
- our sense is that uranium prices will be higher and that
should be reflected in the equities."
Japan remains the wildcard. The world's No.2 uranium
consumer is still mulling its post-Fukushima energy policy as it
tries to balance concerns over aging atomic plants and the
energy demands of the manufacturing sector.
"If Japan doesn't restart its reactors, then the tightness
in the market is unlikely to come," said BMO Capital Markets
analyst Edward Sterck. "The market is likely to be well supplied
for a number of years."
But a supply deficit could develop if Japan does restart its
reactors as Sterck and other analysts expect.
Current global demand for uranium is about 178 million
pounds a year, including some 140 million from mine production.
The rest is from downgraded weapon grade uranium and stockpiles.
In 2013, Russia will stop selling downgraded uranium into
the market, as its "Megawatts for Megatonnes" pact ends. That
means 24 million pounds of uranium, or about 13 percent of
global supply, will disappear.
And projects that were in development prior to Fukushima
have been delayed or canceled, as the low spot price has made it
more difficult to finance risky mines.
"I think, in terms of new production, we're likely to see
further delays to new projects," said Sterck.
With more than 60 new reactors currently under construction
around the world and dozens more planned for the next decade,
further delays could lead to a serious crunch in the mid-term.
"We've only got to have some production not come onstream as
expected, or perhaps a flooding event at an open pit mine
somewhere in the world, and I think the market could be tipped
into undersupply," said Sterck.
While sell-side analysts see an bright future for uranium,
those on the buy side are less certain, at least not in the near
Charles Oliver, a senior portfolio manager with Sprott Asset
Management, was a champion of the uranium industry until a year
ago. "I got smacked last year by the tsunami, unfortunately," he
Oliver, who co-manages numerous funds for Sprott, says
investing in uranium will pay off in the long term. But the risk
in the near term is simple too big to ignore.
"It took 30 years for Three Mile Island to leave the
memories of people and for politics to adjust their views on
uranium," he said. "It could take a decade for the market to
warm back up again."