The only way Woodside isn’t the best energy stock in Australia is if you consider uranium to be the equal of natural gas as an energy export. If you did that, then you’d have to consider BHP an energy stock, what with its uranium at Olympic Dam and its oil production. You’d also want to take a much closer look at Aussie uranium producers and developers. And now would be a good time to do it. Not only has the price of uranium dropped to around US$90 in the futures markets, the demand picture is coming into sharper focus.
The current Prime Minister is expected to sign a deal today authorising the sale of Australian uranium to Russia for civilian use. Australia has already agreed to sell uranium to India. Can China be far behind? It does seem strange, by the way, that Russia – so rich in base metals itself – would be a customer of Aussie uranium. But perhaps the uranium industry is more developed in Australia (on the mining, not the enrichment side).
Paladin Resources (ASX:PDN) director John Borshoff reckons Australia needs twenty five new uranium mines by 2020 to meet growing global demand. “We are talking about building a whole new mining supply industry from a sector that has been dead in the head for 20 years but now faces trying to meet massive demand from a sleeping mode starting point…Some 32 reactors are currently under construction and a further 288 are planned across 28 countries. Current global output is 103 million pounds of uranium oxide but this will grow to 190 million pounds by 2010 and 250 million pounds by 2020…That means we will need at least 25 new uranium mines in production within 13 years.”
Borshoff spoke at the PayDirt Africa DownUnder Conference in Perth, which raises an interesting point about asset quality and political risk. Many Aussie uranium developers have headed to Africa. They’ve gone because there’s uranium there. But they’ve also gone because you can open a mine there – something you can’t do in Australia unless your uranium resources happen to be in South Australia. But going abroad brings up the issue of political risk. Yes, the assets are there. But as a retail investor, what kind of risk are you taking?
Our preference is to focus on developers with less political risk and a large resource base. The risk with these developers is whether the inferred resource base can be proved up to actual uranium reserves – an ore body that can be produced economically and sold on to the market. But there are several firms with promising projects in South Australia. And if you don’t want to subscribe to Outstanding Investments to find out what they are, that’s fine. Just Google “undeveloped South Australian uranium mines” and you’ll be on your way. Good luck!
The Daily Reckoning Australia