Revaluing the uranium sector in advance of a bull market. We
believe that the uranium market is in the early stages of a bull
market rally that could last three to four years. We think the
primary drivers of the bull market will be: a looming
supply/demand shortfall that will drive pricing significantly
higher; Asian utility buying; based on our supply demand
outlook, we think the uranium market will be facing substantial
deficits and that utilities will have to pay higher and higher
prices to secure both spot and long-term supplies. We also
believe that the longer the spot price remains depressed (eg
below US$70/lb), the more dramatic the price run-up will be;
recent asset and equity purchases by Japanese and Korean
utilities have, in our view, signaled the start of utilities looking
to secure long-term supplies where they see potential shortfalls;
we think consolidation in the uranium business will occur in the
coming 12 months, but the number of quality names is limited
and should help drive equity prices higher. Uranium equities
have recovered well from their trough values, but are still
trading well below historic peak values. We have revised our
valuation for the uranium sector to reflect our view that we are
at the early stages of a bull market, but we think the peak levels
are still more than two years away.
RBC Dominion Securities Inc, 29 Apr 09
AI
