China leads the world in plans to increase nuclear power output.
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ASX uranium shares are in the spotlight as uranium prices reach 7-year highs.
Uranium traded as low as US$20 (AU$27) per pound in the aftermath of the tsunami-driven meltdown at Japan’s Fukushima nuclear power plant on 11 March 2011. Today the spot price has more than doubled, to just over US$40 per pound.
The Paladin share price is up 571% over the past 12 months. And this for a company with a market cap of $2.3 billion.
Mid-cap competitor Boss Energy’s shares have soared 250% higher over that same time.
Why are uranium prices rising?
Analysts broadly point to 2 forces working to push uranium prices higher.
First, uranium fuelled nuclear power emits a tiny amount of carbon compared to fossil fuel fired power plants. And they deliver reliable, round the clock electricity supplies. This has seen a number of global powers – led by China – roll out plans to drastically increase nuclear power generation over the mid-term.
The second factor pushing uranium higher, as the Australian Financial Review highlights, is the recent launch of the Sprott Physical Uranium Trust (SPUT). “SPUT has purchased 6 million pounds of uranium in the spot market and deployed more than $US200 million of its at-the-market (ATM) offering in the past month.”
Ben Cleary, the portfolio manager of Tribeca’s global natural resources fund said, “There’s been so much fuel on the floor of the uranium market given it’s been such an undersupplied commodity. The match to set this on fire has been Sprott buying spot [uranium].”
In potentially more good news for ASX uranium shares, Cleary forecasts that uranium prices will run hot over the next 12 months, predicting a spot price of US$100 per pound. His forecast lies partly in the fact that even at today’s 7-year highs, producers are still spending more than they’re receiving.
According to Cleary:
The marginal cost of uranium production is still well above current spot prices. So while this rally may be driven by a financial player in Sprot, fundamentally, the price can sustain this rally and much higher prices because there’s not a mine on the planet that makes money with uranium at $US40 a pound, or even $US50.
Two ASX uranium shares upgraded
Tribeca aren’t the only analysts bullish about the mid-term outlook for uranium prices.
As the AFR reports, this week broker Shaw & Partners upgraded its long-term price forecast for uranium from US$52 to US$60 a pound. “It assumes a multi-year price spike at $US85 a pound.”
Large-cap ASX uranium share Paladin Energy is the “broker’s preferred exposure” to the sector. It upgraded its price target to $1 from the previous 56 cents.
Boss Energy also received a hefty price target upgrade from Shaw & Partners, from 17 cents up to 30 cents.
How have these ASX uranium shares been performing recently?
The Paladin share price is up 260% year-to-date, while the Boss Energy share price is up 185%. That compares to a gain of 11% posted by the All Ordinaries Index (ASX: XAO).
As for today, the 2 ASX uranium shares are powering ahead.
In morning trade, Paladin shares are up 10% to 94 cents per share, whilst Boss Energy is up 8% to 28 cents per share.
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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.