GRAPHIC: Uranium juniors defy bear market pricing
Uranium is having the worst start to a year in a decade.
U3O8 is down more than 20% in 2016 with the UxC broker average price sliding to $27.25 a pound on Monday. Current levels are the cheapest spot uranium has been since 2005.
In contrast the long term price, where most uranium business is conducted, is hovering at around $44 a pound, where it's been since July 2015.
We expect the period from 2017– 2020 to be a landmark period for the nuclear sector and uranium stocks, as the global operating nuclear reactor fleet expands
Haywood Securities in its May metals and mining outlook points out that there's been a striking divergence in how uranium stocks have reacted to the price movements this year.
"In the first half of 2016, while the ‘producers’ sub-group continues to be dominated by near-term uranium price movement, ‘explorers’ and ‘developers’ have benefited significantly from a very strong tow in the junior mining sector, lead by gold and base metals junior mining companies.
"The TSX Venture exchange has risen more than 29% YTD in 2016. With less immediate uranium price leverage, the exploration and development companies continue to benefit from what we see as strong long-term fundamentals for the uranium sector, underpinned by a deep global reactor construction pipeline of more than 60 reactors."
While investors in uranium juniors are clearly taking the long term view, producers and developers have been punished as uranium production "failed to respond to low prices five years after Fukushima altered the fundamental landscape" and secondary supply due to underfeeding of enrichment plants has resulted in inflated global inventories.
Haywood anticipates "a more predictable and normalized supply/demand response will emerge in the coming years" and the Vancouver-based firm says equities are "currently well below historical prices seen in a demand expansion environment":
"We have often witnessed significant responses in equities to positive sector news, without an accompanying price response, signalling the market’s expectations for the sector.
"We expect the period from 2017– 2020 to be a landmark period for the nuclear sector and uranium stocks, as the global operating nuclear reactor fleet expands."