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Following the Fukushima nuclear facility disaster in March 2011, uranium miners were quick to rationalize that the fundamentals of their business were unlikely to change and the world still needed more nuclear power.
They were wrong, to put it kindly.
More than 21 months after Fukushima, the uranium business is still stuck in a rut. Uranium’s spot price has plummeted to nearly US$40 a pound (compared to a high topping US$135 in 2007), and there has been minimal activity in the spot market. Utilities are well-supplied with uranium for the foreseeable future, and, thanks to Fukushima, the outlook for demand growth is not nearly as healthy as it was a couple of years ago.
“The recovery in Japan has been slower than we expected,” Tim Gitzel, chief executive of Cameco Corp., acknowledged in an interview.
Now the question on everyone’s mind is whether things will finally start to turn around in 2013? The market is still waiting for news on Japanese reactor restarts, while digesting Germany’s plans to get out of the nuclear business entirely.
And France, which derives three-quarters of its power supply from nuclear and is the industry’s biggest success story, is talking about scaling back its supply.
Miners have reacted by slashing capital spending and deferring projects. Even Cameco, which maintained a bullish outlook long after Fukushima, finally accepted reality in October and cut its long-term production guidance.
With all of that as a backdrop, investors have seen no reason to get excited about uranium. The stock prices of all the miners plummeted right after Fukushima and they have not recovered.
If there is any solace for the industry, it appears the spot price has found a floor just above US$40, while the long-term price is holding steady at US$60. The price rose to US$43.50 a pound this week, according to Ux Consulting, and there was a bit more buying activity as well.
“We may have bumped off the floor, but I don’t have hope for any great change in the near future,” Mr. Gitzel said.
Most industry experts say the key catalysts to turn things around have to come from the demand side, specifically Japan. Only two of Japan’s 50 nuclear reactors are currently operating, and the government has said it plans to exit the nuclear industry entirely by 2040.
Even if that goal isn’t feasible, the delays in restarting the reactors remain a concern for the market. Japan has created a bit more certainty by appointing a regulator, which expects to put standards in place next year. But a real industry turnaround is not expected until the country lays out a firm restart plan.
For the rest of this article, please go the National Post website: http://business.financialpost.com/2012/12/12/uranium-miners-still-struggling-to-emerge-from-shadow-of-fukushima/