Analytics forecast global increase in uranium price over deficit

13 November, 2018, 12:05 716
Analytics forecast global increase in uranium price over deficit

It is expected that the world uranium consumption will observe an annual increase by 4.8%, thus reaching 97.9 thousand tons by 2020. 

 

International investors come back to the uranium market. In three weeks, the spot price for uranium has gone up by 4.9%. Kazakhstan's internal market also observes colossal interest in deals. Following the data of Freedom Finance, over 200 applications for KazAtomProm's IPO on the AIFC Stick Exchange have been received in four days, Finprom.kz reports. 

"Over six years, uranium was not of interest to players at the commodity market. The market was controlled by producers and consumers of the nuclear fuel through direct closed deals. Prices for stock-exchange uranium futures was steadily going down. The volatility of uranium prices returned at the end of the 3rd quarter of 2018 in the background of the announcement of a further considerable reduction in world uranium production in November 2017. At that time Cameco closed the McArthur River mine (the largest uranium mine in the world, producing around 18 million pounds of commodity a year) for at least 10 months. According to Cameco's announcement, the KazAtomProm national atomic company declared a 20% reduction in the planned uranium production in Kazakhstan by 2020. The announcements caused the spot price for uranium reaching its maximum mark - 26.5 dollars per pound," analytics said. 

However, the announcements regarding reductions in uranium production in Canada, Kazakhstan, the USA, and Africa were made in late 2016 and early 2017. At that time February's prices went up from 22.25 dollars per pound to the maximum price of 25.5 dollars in March 2017. But in May the prices dropped below 20 dollars per pound and remained the same until the year's end. 

The last event leading an increase of 4.9% in price, up to 29.1 dollars, was an announcement of KazAtomProm on holding IPO o the two stock exchanges AIX (Astana) and LSE (London).  

The IPO's main peculiarity is that a limited number of companies of the uranium sector (4 out of 10) have public status. As a result, a wider range of investors and professional participants of the market should have a great interest in securities of KazAtomProm for the diversification and potential revenues. Shares of the largest companies in the uranium sector (Cameco, CNNC&CGN, Rio Tinto and BHP Billiton) are stagnant and into a downward trend, increasing interest in KazAtomProm's IPO among long-term investors and speculators who will provide the liquidity of the company's securities.  

KazAtomProm's closest competitor is Canada's Cameco (with a share of 17% in the market), the financial report of which revealed that following the first halfyear of this year, the company has observed a net loss of 16.5 million dollars (-21.7 million Canadian dollars). The company connects it with the week market conditions caused excess uranium and the decrease in revenues by 10.4% - from 653.7 to 585.8 dollars. 

Nevertheless, considering the factors in regard to KazAtomProm with its revenues depending on the volatility of uranium prices, the company has never experienced a loss but increased its net income. 

So for the same period (1st quarter of 2018), the company's income has equaled 145 billion tenge, including a net income of 115 billion tenge. In 2017, the company's revenue was 336.5 billion tenge (-14.7%), and a new income - 139.2 billion tenge (+20.9% by the put option).

On the world market, KazAtomProm's deal attracts special attention. Its players expect a long increase in prices against the forecasted uranium deficit. Following Ux Consulting, the reduction in production was caused by the positive depressed uranium prices, that were below the overall production costs of a majority of world primary uranium producers and coincided with the expected expiration of more expensive supply contracts signed in the 2nd half of the 2000s.  

As of the end of the 1st halfyear of 2018, there are 443 nuclear reactors in the world, 56 reactors are underway, 500 are planned to be constructed. China and India lead: 11 atomic reactors are built in China, and seven in India. 

It is expected that the world consumption of uranium will year increase by 4.8%, thus reaching 97.9 thousand tons by 2020. 

Kazakhstan's internal market also observes colossal interest in deals. Following the data of Freedom Finance, over 200 applications for KazAtomProm's IPO on the AIFC Stick Exchange have been received in four days. 

An IPO will be a benchmark for all future IPO companies from Samruk Kazyna and will enable to assess a whole cycle of preparations, listing, and placement of securities.