Japan's U-turn points to a new, clear future for uranium sector
Power move: Japan is back in the market for uranium. Photo: Glenn Campbell
AFTER 15 months in the wilderness, a new dawn emerged for the uranium sector this week in the land of the rising sun.
Faced with electricity shortages and the prospect of rationing power supplies through the approaching summer peak, Japan reluctantly returned to nuclear power.
In a decision that went against most popular polling but appeased big corporations, the Japanese government ordered the restart of two nuclear reactors in the heavily populated Kansai province.
For the Australian uranium industry, still bruised and battered from the Fukushima fallout, this was an important day.
The restart of Japanese reactors had long been spruiked by ASX-listed uranium plays as the first of two key steps needed to drag the sector out of the nuclear winter that descended when tsunamis overwhelmed the Fukushima nuclear plants.
Despite Japan continuing to consider a long-term exit from nuclear power, Greg Hall, of the uranium aspirant Toro Energy, said actions spoke louder than words.
''While Japan might review long-term its commitment to nuclear and whether it can phase it out over the long term, they need nuclear power now,'' he said.
With Japan struggling to dig its way out of an economic hole, Mr Hall reckons 40 of Japan's 55 nuclear reactors will be operating again within two years.
''You make these investments in nuclear power for 40 years,'' he says. ''It is very, very hard not to use that investment.''
The second key step the uranium industry has waited for is confirmation from China that its nuclear power expansion plans - placed on pause in the wake of Fukushima - are back under development.
That confirmation is yet to officially emerge, but a regular stream of comments from Chinese officials suggest it is not far away.
JPMorgan analyst Mark Busuttil said that while decisions in China, Korea and Russia were more pivotal to the uranium growth story, this week's Japanese restart was still ''an important symbolic milestone''.
Mr Hall agrees, saying the decision will make it far easier for officials in other countries to follow suit. ''This was a very important psychological event,'' he says. ''If the country that was affected the most by this disaster is restarting plants, then the rest of the world starts to think differently too.'' But markets have a psychology all their own, and the reaction on local trading was hard to interpret.
The news sent shares in such pure-plays as ERA and Paladin Energy surging by more than 10 per cent and 8 per cent respectively on Monday. ERA, which was hosting investors on its site this week, managed to build on those gains, but the enthusiasm faded fast for Paladin, which closed the week at its lowest point in more than a month.
The $1.16 that Paladin was testing yesterday compares with the $5.57 the stock was worth in the weeks before the Fukushima disaster.
Admittedly, both companies have their own specific risks connected with debt and future projects that affect their valuations.
Mr Hall, whose company ended the week with a lower share price than it started, said bearish investor sentiment towards the global economy had overwhelmed any good news that emerged on an industry level.
Indeed, in the week that was supposed to herald a new dawn for uranium, there was evidence that the small end of the industry was close to conceding defeat.
The ASX-listed explorer Thundelarra announced that it would cut staff numbers and reduce the salaries of those to survive.
''Thundelarra is likely to joint-venture or dispose of a number of projects,'' the company said in a frank statement. ''Uranium remains a core asset, but activity will be at tenement maintenance levels until a recovery is apparent in global sentiment for uranium.''
The announcement comes after fellow ASX minnow Deep Yellow announced plans to cut back exploration to rationalise and refocus spending on its priority project.
With a spot uranium price hovering below $US51 ($A50) a pound, and contract prices believed to be closer to $US60 a pound, Mr Busuttil said there was a long way to go before vibrancy returned to the small end of the sector.
''The price that's required to give a 15 per cent return on a typical greenfield uranium project is about $US83 per pound, so at the moment it is unlikely that any of the small uranium explorers would make appropriate returns,'' he said.