(MENAFN- ProactiveInvestors - N.America) The uranium market is showing signs of life, according to H.C. Wainwright analysts, who wrote a research note on the weakened-yet-reviving industry yesterday.
The sector has been plagued ever since the Fukishima nuclear disaster in 2011, but analyst Jeffrey Wright said that the market appears to have not only bottomed out at around $28.00 per pound in the spot market recently, but has also turned a corner with uranium spot prices consolidating a little above $35.00 a pound since mid-2014.
Uranium prices have been depressed ever since the earthquake and tsunami that struck Japan in 2011, which led to the shutdown of nearly all the reactors at the Fukushima-Daiichi atomic power plant. Many producers had to cut back on new projects and suspend existing ones until prices recover.
While the Fukushima plight was no doubt a setback for the industry, there are currently 94 percent more nuclear reactors under construction and planned than at the height of the uranium market in 2007, according to H.C. Wainwright. This is attributed to increased demand from markets such as China, Russia and India.
"The long-term future for nuclear power construction is strong in China, India and assorted other locations in emerging markets based on the number of nuclear reactors under construction and in the planning phase over the next twenty years," Wright wrote in his note.
"Chinese nuclear power generation is projected to increase by approximately 200%, or 17 GWh to 50 GWh, over the next five years. In the near term, we think the nuclear power industry and in turn the uranium producers will only overcome a negative market psychology with a successful series of nuclear power plant restarts in Japan."
The analyst noted that while the uranium market has been under pressure, and is only now showing signs of rebounding, US uranium producers have been making what he calls "significant progress" in reaching initial production goals and also exercising prudent balance sheet management.
Wright highlighted four of the US uranium producers it covers, including Uranium Energy (NYSEMKT:UEC), Uranerz Energy (NYSEMKT:URZ), Energy Fuels (NYSEMKT:UUUU) and Ur-Energy Corp (NYSEMKT:URG).
Uranium Energy and Uranerz have certainly made strides towards production, as the former continues to advance both its Burke Hollow project in the permitting phase and its Palangana mine's planned production areas, while the latter has recently joined the ranks of uranium producers by completing its first shipment and continuing to ramp up output.
Meanwhile, Energy Fuels has pursued a conservative strategy to preserve its strong balance sheet and resource portfolio for future uranium production, according to Wright, positioning itself for success should higher price levels return in 2015 and beyond.
The company, which is America's largest conventional uranium producer, has cut down signficantly on costs and sold a host of non-core assets, while also deciding to place its White Mesa mill and all associated mines on standby in Q4, once planned production has been completed.
And Ur-Energy recently confirmed its guidance for this year, detailing an initial plan to build inventory of uranium into 2015.
H.C. analyst Wright concluded: "While we are cognizant of the risks posed by the uranium sector, we do believe the risk-reward at current equity valuations should lead investors to deploy fresh capital in the sector.
"In our opinion, as a whole, the uranium producers have experienced selling pressure not only from weak commodity prices but also a capitulation in the sector. We now can see fresh signs of hope and into 2015 and beyond for patient capital which allows for what we anticipate to be a series of nuclear reactor restarts in Japan which could trigger a recovery in uranium spot prices."
He said the key to buying uranium stocks is to be patient, and take a "much longer" investment horizon, remaining aware of the headline risk associated with nuclear power and the uranium mining sector as a whole.
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