Japan disaster casts a pall over the uranium market

It is impossible to predict the long-term ramifications of the slow-motion horror movie playing out in Japan as a handful of brave workers battle seemingly in vain to regain control of the Fukushima nuclear plant.

The newspapers headlines reflect a growing concern that a nuclear catastrophe is about to play out in front of a watching world tuned into the 24 hour news channels.

International reaction has been muted and confused, though we are seeing the beginnings of a bandwagon against nuclear power.

Germany has said it will shut down its seven oldest reactors, and has suspended plans for new plants along with Switzerland.

Italy and Poland, meanwhile, are now rethinking their nuclear investment plans.

And then yesterday the People’s Republic of China, a manic builder of nuclear power plants, suspended its nuclear programme.

“Until the [new] nuclear safety plan is approved, we will suspend approvals of new plants including those in the pre-development phase,” China’s State Council said.

“We must fully understand the urgency and importance of nuclear safety.”

Apparently Premier Wen Jiabao listened intently as experts outlined steps that would be taken to guarantee the safety of China’s nuclear reactors, including immediately checking all operating reactors.

This move by the People’s Republic had an instant impact on the burgeoning uranium sector.

Overnight in Australia, producers and miners tumbled in value. Mantra Resources (ASX:MRU) tanked 27 per cent, Extract Resources (ASX:EXT, TSE:EXT) was down 24 per cent and Paladin Energy (ASX:PDN) fell 9 per cent.

It was no different here in the UK with Berkeley Resources (LON:BKY) and Kalahari Minerals (LON:KAH) each down 8 per cent.

For Kalahari the news from China couldn’t have come at a worse time. It is the focus of a conditional £756 million takeover bid from a subsidiary of Guangdong Nuclear Power, one of the biggest operators in the Middle Kingdom.

Today's fall is the latest the stock has taken from 300 pence shortly after the bid was announced to below 200 pence.

Here the City analysts are finding it impossible to assess the likely impact of the disaster.

Certainly in the short to medium term renewable energy and coal stocks are likely to become fashionable with investors.

“There will inevitably be calls to abandon nuclear power as a key energy source, and every possibility that the nuclear industry will be hit hard,” said independent consultant John Cornford, in a piece of research for City broker Westhouse.

However, long-term how easy will it be to wean the world off nuclear? China, a voracious consumer of energy of any kind, probably does not have the capacity to simply ditch its nuclear programme, says Nick Mellor, an analyst at Ambrian Capital.

“We believe it is of course hugely important for the government to be seen to be conducting a full and proper safety review of proposed new builds and existing capacity – so as to allay genuine fear in the population,” Mellor added.

“The Chinese government is no doubt well aware that regardless of their political infrastructure – the rolling out future energy policy which is reliant on a large portion of nuclear energy growth – is as much about winning hearts and minds as it would be here in the West (remember that civil unrest in China is something that the government readily fear).”

Outside the People’s Republic it is difficult to see just how and where the pendulum will swing.

However, Chernobyl - the world’s worst nuclear disaster – prompted the US and Europe to postpone the building of a whole generation of nuclear reactors in favour of coal-fired power.

And it is this sort of reaction the market is pricing in as uranium stocks have collapsed and the price of the metal itself has tumbled US$6.50 to US$66.50 in a week.

“Uranium stocks have already, it should be noted, priced in a significantly negative outlook and would be expected to recover if catastrophe is avoided,” broker Westhouse said.

Whether, however, this is a buying opportunity is another matter. The speculators may believe the likes of Kalahari, Mantra and Cameco (NYSE:CCJ), the world’s largest uranium producer, are oversold.

However it would be a brave, if not to say foolhardy speculator who began buying at this point of minimum visibility and highest volatility.

Longer-term, however, nuclear is going to play a part in the energy supply story as our fossil fuels run out and wind and wave power struggle to supplant them.

“A mitigating factor in that eventuality is the immediate availability of alternative energy sources,”Westhouse concludes.

“The case for nuclear power has been strengthening in the face of global warming, while the other hidden influences on uranium supply, and therefore its price (which is not, of course, traded), such as arms reduction and decommissioning, have been promising to clear.”

Below are some the uranium stocks we have covered closely here at Proactive Investors.

Aura Energy (ASX:AEE) - Listed in Australia, the company’s focus is Sweden and in particular the Storsjön Project located in country’s Alum Shale Province, one of the largest depositories of uranium in the world. It also owns the highly prospective Reguibat Project in Mauritania.

Fission Energy (TSX-V:FIS, OTCQX: FSSIF) - The Canadian based exploration and development group has properties in Saskatchewan's Athabasca Basin, Quebec, and the Macusani District in Peru.

Forte Energy (LON:FTE, ASX:FTE) - The Australian-based miner was boosted recently by the news that its Firawa uranium project in Guinea may host a substantial body of rare earth element mineralisation. Rare earths are hot property at the moment, as the developed world looks for new sources of the vital metals to loosen China’s grip on global supply.

Kalahari Minerals - As we said earlier the subject of 290 pence a share bid from China. Kalahari owns 43 per cent of Extract Resources, which in turn controls Namibia’s Husub Project next door to the Rössing Uranium Mine.

Toro Energy (ASX:TOE) - One of Australia’s largest emerging uranium exploration and development companies, it  has uranium rights surrounding the Prominent Hill Mine in South Australia owned by OZ Minerals (ASX:OZL).  Toro also owns uranium rights at nearby Mt Woods.