Uranium might fly again, but your money might be better invested elsewhere
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Uranium is back in the news for good reason – it’s a clean fuel ideal for generating electricity without producing carbon pollution.
But that doesn’t mean it’s a particularly good investment.
The main reasons for steering clear of uranium include a price-crushing stockpile of surplus material, mothballed mines that can be easily re-started if/when the price rises, a glut of cost competitive natural gas, and the growing popularity of renewables.
Detachment, rather than emotion, is essential when considering an investment in uranium, whether through direct exposure to the metal via companies such as London-listed Yellow Cake, or one of the few pure-play uranium exploration stocks left on the ASX.
Recent publicity associated with pre-election approval by the Australian Government of the long-delayed Yeelirrie project in WA, or a US Government inquiry into uranium imports, has stirred interest in the metal which is a hot-button topic among environmentalists.
Unfortunately, none of what’s been reported recently is necessarily good news for the price of uranium which its supporters say has a role to play in helping mitigate climate change by cutting carbon emissions, and its detractors say is too dangerous to handle under any circumstances.
The delicious irony in the “for-and-against” debate is that both sides are right, up to a point, and that means the outlook is for the status quo to be maintained – or, from a political perspective it’s much safer to do nothing than risk rocking the uranium boat.
Handled safely and stored securely and uranium can do more good than harm. Ask anyone who’s undergone life-saving radiation therapy to control or destroy cancer cells and see if they want to abolish uranium or close all nuclear reactors.
The same question can also be asked of people serious about cutting carbon emissions because there is no doubt that the carbon-free nuclear fuel cycle has a role to play, and is playing a leading role in many countries – just not Australia.
But, and this is a big but, uranium handled badly is deadly material, not just in nuclear weapon warheads, the ultimate weapon of mass destruction, but in power-generating reactors that get out of control with three infamous incidents the case studies that cannot be forgotten – Chernobyl in Ukraine, Three Mile Island in the US, and Fukushima in Japan.
In uranium news today the issue getting most local headlines (because there’s an election campaign underway) is Yeelirrie, a uranium deposit discovered almost 50 years ago by the old Western Mining Corporation, briefly owned by BHP and now by the leading Canadian uranium producer, Cameco.
Yeelirrie, named after a sheep station of that name near the historic goldmining centre of Wiluna, was taken all the way to a trial processing stage by WMC but consigned to the too-hard basket because the world in the 1980s was awash in cheap oil and memories were raw after the 1979 meltdown of a reactor at Three Mile Island.
Seven years later the Chernobyl meltdown reinforced the bad perception of the nuclear fuel cycle, followed by Fukushima in 2011, with each accident doing immense damage to nuclear power and the price of uranium which was also being driven down by the US and Russia de-commissioning warheads, and using the fissile material for power generation.
The net result of this seemingly perpetual flow of bad news is that the uranium price has been crushed, not once, but multiple times, plunging from a peak of $US135 a pound in 2007 to as low as $US18/lb in 2017 before creeping back to $US29/lb late last year and most recently back to $US25.75/lb on the short-term market.
At its latest short-term price (and most is sold under long-term contract) uranium is less than half the estimated $US65/lb required to encourage the re-opening of mothballed mines and even less than the “incentive” price to develop new mines.
The findings of the US uranium inquiry, undertaken because domestic producers of the fuel claimed they had been forced out of the business by imports from countries unfriendly to the US, including Russia and Kazakhstan, has landed on the desk of President Trump.
In theory, Trump could use increased trade tariffs to restrict uranium imports from unfriendly countries which might help Australian uranium miners and perhaps encourage the domestic US industry.
But if the President does take that step then Canada would be the winner because it has a much bigger uranium industry than Australia and a number of very big mothballed mines which could quickly restart.
How more US-mined uranium could help lift the price of an already over-supplied material is an easy question to answer – it won’t.
On the Australian stock market uranium-exposed explorers have barely moved since the debate started over the US inquiry and the all-clear for Yeelirrie because both events are not positive for local equities.
The company which might have been expected to move higher if investors were confident that the uranium price was poised to stage a significant rebound is Yellow Cake PLC, a London-listed business which does nothing but buy-and-hold uranium acquired from the uranium arm of the government of Kazakhstan.
Over the past two weeks, as the US inquiry has been bubbling away in the news with some analysts expecting it to have a positive impact on the uranium price, the share price of Yellow Cake has actually drifted lower, losing 5% to £2.12, taking its fall since the start of the year to 13.5%.
Uranium, in theory, could be a solid investment – but that’s something analysts have been saying in the eight years since Fukushima, the 33 years since Chernobyl and the 40 years since Three Mile Island.
It’s an unkind comparison but uranium reminds some people about the almost bald, 60-year-old cockatoo taught to say: “One more feather and I’ll fly … one more feather and I’ll fly.”