Energy Squeeze Puts Glow on Uranium


JOHANNESBURG (Business Day) -- The latest titbit to feed investors’ growing appetite for uranium is Nufcor Uranium [LSE:NU], a uranium investment vehicle spun out of a joint venture between AngloGold Ashanti [NYSE:AU] and FirstRand [JSE:FSR].
Nufcor Uranium was listed on London’s Alternative Investment Market (AIM) on July 21. According to its offer statement, “the company will provide transparent exposure to the uranium price”. Its shares are 10% held by Nufcor International, which is 50% held by AngloGold and FirstRand International. The other shares are held by institutions.
According to uranium consultants Ux Consulting, investors and hedge funds have become active players in the uranium spot markets and last year they accounted for about 25% of total volumes. Nufcor Uranium is a similar concept to a Canadian uranium investment fund called Uranium Participation Corporation, as both give direct exposure to the mineral in the same way that gold exchange traded-funds give direct exposure to gold.
Nufcor International was established in 1999 to market fuel products, including but not limited to AngloGold’s own uranium production. AngloGold is South Africa’s only active uranium producer and mines about 69 tons of uranium a month as a by-product of gold mining. It plans to increase output to 75 tons a month next year.
At AngloGold’s interim results presentation last week, marketing executive Thero Setiloane said Nufcor Uranium’s strategy was to buy and hold U308 for the longer term, not to trade it actively.
Based on the offer price of 205 pence, Nufcor’s market capitalisation at listing was £67million (US$126 million). But the shares have already gained 16% to 238.5 pence, giving it a market capitalisation of about £78.71 million (US$148.6 million).
This reflects the increase in the uranium price since July 21 as well as investor interest in uranium, as the shares have traded at a widening premium to the underlying investment.
“We are delighted with the successful launch on AIM and are working on other ways to optimise our uranium production capabilities and use our expertise in this market,” he said.
The two biggest listed uranium producers in the world are Toronto- and New York-listed Cameco [NYSE:CCJ;TSX:CCO] and London-listed Rio Tinto [NYSE:RTP;TSX:RIO], which houses coal and uranium within its energy division.
According to Cameco, average industry prices for U308 have risen from $9.70/lb in Jan 2002 to $47.25/lb last month.
Although uranium is by no means a rarity — it is more common than tin and 500 times more common than gold — two main factors are driving the price, according to a recent article in The Telegraph Money.
Russia has indicated it will not continue converting nuclear warheads into fuel after 2013, and so far this has accounted for about 10% of supply. Also, a number of countries around the world are approving nuclear power plants.
The World Nuclear Association says there are 27 nuclear reactors under construction and 38 in the planning stages. Another 115 have been proposed.
Nuclear energy is being promoted as a cheaper alternative to oil and gas and lacking the same emission problems. One ton of uranium generates as much power as 116 000 tons of coal, and uranium makes up only 5% of the costs of operating a power plant, against 75% for gas-fired stations.
The world’s biggest uranium producer in 2004 was Canada at 30.15-million pounds, followed by the former Soviet Union with 23.58-million pounds; Australia (23.33-million pounds); central Africa (8.53-million pounds); and Namibia (7.9-million pounds).
South Africa is the seventh-largest producer of uranium in the world after the U.S.
<