Uranium shares off investors radar

Published in the Illawarra Mercury, March 2011 by Rebecca Le May

Australian uranium stocks rebounded yesterday but not enough to claw back the heavy losses of the week as the nuclear crisis in Japan dented the sector's outlook.

Among uranium miners, Rio Tinto Ltd majority-owned Energy Resources of Australia Ltd [ERA] was up 68c, or 9.29 per cent, at $8 and Africa-focused Paladin Energy Ltd was 25c or 7.46 per cent firmer at $3.60. Over the week RA lost about 14.89 per cent of its value while Paladin was 23.89 per cent down.

Among the explorers, Extract Resources Ltd was up 50c or 7.69 per cent at $7 yesterday, Toro Energy Ltd was 1c or 11.11 per cent, firmer at 10c and Deep Yellow Ltd was 21.62 per cent higher at 22.5c.

For the week, Extract was down 34.15 per cent, while Toro and Deep Yellow were about 23.08 per cent and 18.18 per cent cheaper, respectively.

Driving the improvement yesterday was a pledge by the Group of Seven major economies to halt the rise against the US dollar in an effort to stabilise the Japanese economy.

This followed the Bank of Japan pumping $439.36 billion into Japanese money markets since Monday to restore liquidity in the wake of last week's earthquake.

The market appears cautiously encouraged by efforts to restore power and cool reactors at the stricken Fukushima nuclear power plant.

Morningstar senior research analyst Mark Taylor said the near-term outlook for the uranium market was negative as Japan kept nuclear power plants offline while safety inspections, clean-ups, upgrades and closures were made.

"This could take a number of years," Mr Taylor said of the rebuilding effort.

"Japan accounts for about 10 per cent of global uranium consumption and around one-fifth of its reactors are affected.

"This might not sound like much but it's more than enough to influence prices ... in a relatively thin commodity market."

Ord Minnett senior resources analyst Peter Arden says the negative outlook for the uranium sector may be very prolonged.

The disaster had fractured confidence in the resources sector as a whole and this damage would not be repaired quickly, Mr Arden said.

"Uranium stocks will take some time to regain their position," he said.

"It could even take a couple of years to see them get back fully."

He said it was important that Japan, a major steel maker, continued to buy coal and iron ore, even if it meant stockpiling it, to prevent other nations taking up their supply and steel-making market share.

"Demand is going to get knocked around and the question is, can the other countries in the neighbouring region step up and take the extra supply?"

If they did, Japan may have trouble getting back in the game.

Wealth Within analyst Dale Gillham said Australia's pure uranium miners could remain out of favour.