Nufcor listing to fly amid unique market


[miningmx.com] -- FEARS that the uranium market might become subject to some of the zealous trading experienced in other commodity markets seems misplaced. “It’s not really like any other commodity market,” says Charles Scorer, CEO of Nufcor International, the British-based marketing and research company.
The uranium price had improved to around $46/lb from under $10/lb at the beginning of 2004. The price gains are of a similar quantum to the more recent improvement in the traded prices of some base metals and precious metals, such as gold and platinum.
In some cases, such as copper, buying has been so great as to suggest unsustainable speculative interest. That doesn’t appear to be a factor in the improvement in uranium prices.
According to Scorer, a key difference separating the uranium market from other commodities is its relative immaturity. “You can’t really say there was a proper uranium market before the late Sixties,” says Scorer. “And since then the market has been dominated by large above ground stocks.”
These are the strategic inventories kept during the Cold War by both the US and the Soviet Union. During the Nineties the oversupply of uranium was exacerbated by the so-called “down blending” or Soviet weapons grade uranium into commercial fuel.
However, those stocks are being depleted and underinvestment in new sources of uranium has meant suppliers can’t respond quickly enough to a concurrent spike in demand for uranium.
It’s against this background that Nufcor International announced earlier this week that it had raised $123m by selling shares in a new company, Nufcor Uranium, on Britain's Alternative Investment Market.
Nufcor, which is jointly held by South African firms AngloGold Ashanti and Rand Merchant Bank, stocks and trades uranium as well as offering leasing and inventory management services. It also provides risk capital to projects in the nuclear fuels business, which adds an obvious further dimension to Nufcor.
“The uranium industry is currently woefully unprepared to cope with such a dramatic future demand increase,” said Sacha Borthwick, an analyst at British stockbroker HargreaveHale in a report in April.
There are also exogenous factors affecting the supply of uranium, including limitations on uranium mining licences, which are restricted in Australia. “We’ll see more commercial production from Australia,” says Scorer, even though permitting is a major issue. “But in the end there’s an environmental and commercial case to be made for uranium.”
However, native title issues, inflationary pressure on new mine economics, a shortage of skills and the relative dearth of economically sustainable large-scale mining operations are factors that come into play.
Amid depleting sources of fossil fuels, increasing environmental pressure on emissions and improvements in nuclear safety demand for nuclear reactors is outstripping supply. In addition, a 40% increase in the current tally of 441 reactors is expected with world electricity supply expected to double within the next 25 to 30 years.
Total world reactor uranium oxide requirements in 2004 was 172 million pounds compared to primary supply of 104 million pounds.
“Primary uranium supply is increasing – but not fast enough,” says Borthwick. “Lead times for new uranium mines are very long – sometimes more than 20 years – and there have been no new major uranium deposits discovered in the past two decades.”
Scorer agrees that uranium mines haven’t been ramped up quickly in the past, but adds there was no need to do so. “Under pressure you could find supply coming on quicker than expected.”
There’s wide variation in where the price of uranium oxide – the so-called “yellow cake’ that’s supplied for enrichment – will stabilise. Resource Capital Research suggests $50/lb by 2007, while HargreaveHale estimates an average price of $45/lb in 2007 and 2008, increasing to $50/lb in 2009, adding that its estimates are deliberately conservative.
“There’s a good possibility of a supply crunch that could drive uranium prices to unbelievable highs,” said Kevin Bambrough, an analyst at Sprott Asset Management in a report last year.
Nufcor stockpiles uranium in a similar fashion to the C$100m energy fund established by Sprott Asset Management. Sprott’s fund holds about 16% of the world’s uranium supplies, having already identified growing demand and then adding to the deficit by buying up inventory.
Not enough uranium is being discovered and a number of exploration firms have thrown their hats into the ring in an effort to find the mineral. That raises the prospect that financeable projects are in the offing for Nufcor.
Nufcor International, an offspring of the Nuclear Fuels Association of SA, was registered in Britain in 1999.