Uranium glows again

URANIUM stocks have had their best day since the Japanese nuclear crisis in March, with Prime Minister Julia Gillard's support for sales to India adding to positive developments for the sector in overseas markets.

By InvestSMART · 16 Nov 2011

By InvestSMART ·
16 Nov 2011

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Share price rises of more than 10 per cent were common across the Australian uranium sector, with the value of smaller stocks such as Deep Yellow and Peninsula Energy increasing more than 20 per cent in one day.

Ms Gillard's pledge to lobby Labor colleagues to overturn the ban on sales to India follows strong competitive tension for takeovers in the uranium sector and last Friday's 7 per cent rise in the global price.

Paladin Energy boss John Borshoff said selling to India would be a "much needed move" given many other nations were already doing so. Paladin shares rose 5? to $1.66, meaning the stock has risen close to 18 per cent over the past week.

Toro Energy shares rose by more than 10 per cent to 8.5?, and chief executive Greg Hall said the biggest impact of such a change would be to encourage Indian investment in Australian uranium stocks.

BHP Billiton could benefit significantly if sales to India are legalised, given the company's plans to develop the world's biggest uranium mine at Olympic Dam in South Australia. BHP said it may review its ban on selling uranium to India if the Australian government were to change its policy and safeguards were in place.

UBS analyst Tom Price said just 2 per cent of the uranium sold globally was bought by India, but the nation's demand was expected to grow at 5 per cent each year between now and 2020.

The increasingly competitive scramble for control of Canadian company Hathor Exploration was also boosting confidence in the sector yesterday. Hathor has a massive uranium prospect in Canada and is the focus of a takeover bidding war between Rio Tinto and Cameco.

Cameco topped Rio's most recent bid on Monday, in a move that values Hathor almost 70 per cent higher than the stock was fetching in August.

There are expectations Rio may respond by improving its offer for Hathor, and industry pundits say that bidding war, coupled with similar competitive tension for control of Perth miner Extract Resources, shows the big companies have a positive long-term view of uranium.

Despite the burst of optimism for the sector, all the uranium pure-plays mentioned above are still worth dramatically less than they were before the Fukushima nuclear disaster.

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Frequently Asked Questions about this Article…

Why did uranium stocks surge recently and what drove the rally?

Uranium stocks had their best day since the March Japanese nuclear crisis after several positive developments: Prime Minister Julia Gillard signalled support for lifting the ban on sales to India, global uranium prices rose (about 7% the previous Friday), and takeover competition in the sector intensified. Together these factors boosted investor confidence across Australian uranium producers.

Which Australian uranium small-cap stocks saw the biggest one-day gains?

Smaller Australian uranium stocks such as Deep Yellow and Peninsula Energy jumped the most, with share price increases of more than 20% in a single day, according to the article.

How did Paladin Energy and Toro Energy shares perform and what did their management say?

Paladin Energy shares rose to $1.66 and the stock had climbed close to 18% over the past week. Paladin’s chief executive John Borshoff said selling to India would be a “much needed move.” Toro Energy shares rose by more than 10%, and chief executive Greg Hall said legal sales to India would encourage Indian investment in Australian uranium stocks.

Could BHP Billiton benefit if Australia allows uranium sales to India?

Yes. The article says BHP Billiton could benefit significantly if sales to India were legalised, given its plans to develop the world’s biggest uranium mine at Olympic Dam in South Australia. BHP also indicated it may review its own ban on selling uranium to India if the Australian government changed policy and appropriate safeguards were in place.

What takeover activity is affecting uranium sector sentiment?

A competitive bidding war for Canadian company Hathor Exploration — involving Rio Tinto and Cameco — was highlighted as boosting sector confidence. Cameco topped Rio’s most recent bid, valuing Hathor significantly higher than it was months earlier. Similar competition for control of Extract Resources also signals major miners see long-term upside in uranium.

What did analysts say about India’s future demand for uranium?

UBS analyst Tom Price said India currently accounts for just about 2% of uranium bought globally but that India’s uranium demand was expected to grow around 5% per year between now and 2020, supporting long-term demand prospects.

Have uranium pure-play stocks returned to pre-Fukushima levels?

No. Despite the recent burst of optimism and share price gains, the article notes that the uranium pure-plays mentioned are still worth dramatically less than they were before the Fukushima nuclear disaster.

What should everyday investors monitor in the uranium sector right now?

Investors should watch government policy on selling uranium to India (and any changes from Canberra), movements in the global uranium price, takeover activity among major miners (which indicates big-company sentiment), and progress on large projects such as BHP’s Olympic Dam — all factors highlighted in the article as drivers of uranium stock performance.