Gauging the Uranium Market's Recovery
On March 11, 2011, Japan's east coast was hit by a terrible earthquake that was followed by a tsunami, leading to a triple reactor core meltdown at the Fukushima Daiichi nuclear plant. Around 160,000 citizens were relocated to temporary shelters and other places in Japan to avoid contamination. While the damages are not yet completely undone, the estimated bill for the damage is believed to be at least $250 billion.
The aftermath of the disaster
The disastrous incident has had different effects on different countries.
Germany, too, has a long-standing relationship with nuclear power to fulfil its electricity needs. But, the German government's stand regarding its nuclear program has not been consistent. After Fukushima, Germany's latest stand is that nuclear use of nuclear energy should be gradually reduced as it faced protests in this regard. This is in spite of the fact that the government's analysis states that German nuclear plants are not at risk. However, despite the feasibility of their plants, the German government is currently accepting bids from private companies to decommission their plants.
Another nuclear power dependent nation, France, is planning to reduce the extent of such dependence. In fact, France has the highest dependence on nuclear power with more than 75 % of France's electricity produced by nuclear plants which it also exports to the neighbouring countries like Italy and Switzerland. However, France has been historically pro-nuclear and even after Fukushima, "the country has no plans to decommission any plants or to move away from nuclear power," as reported by Global Journalist. France will only reduce its dependence on nuclear power to 50 % in future and that too only for the purpose of diversification rather than from a safety point of view.
The effect on China's nuclear plans was minimal. It went ahead with its existing nuclear projects. While initially it kept new approvals on hold to reassess plant and safety system designs, the government soon lifted the moratorium and approved four new projects in Nov 2012. China is now expanding its fleet of nuclear reactors more rapidly than any other country.
In India too, the government seems to be pro-nuclear. But the conservative nature of implementation and an established pattern of extravagant promises and poor performance characteristic of Indian government give enough hints that the progress in this direction is not going to be any faster. Still, India will drive some demand for Uranium in future as Indian government plans to triple domestic nuclear power-generation capacity by 2020-21.
Effect on Companies:
According to Cameco (CCJ) president and CEO Tim Gitzel, China's nuclear program will be key to growth in the long run. As reported by The Star Phoenix:
"In 2010, Cameco signed long-term agreements with two Chinese utilities: a deal to furnish China Nuclear Energy Industry Corporation with about 23 million pounds of uranium concentrate through 2020, and one to supply China Guangdong Nuclear Power with 29 million pounds through 2025."
As a result, Cameco is banking heavily on the deployment of 64 reactors over the next 10 years, of which China is expected to account between 10% and 20% of world nuclear operations in the near future.
In line with the industry's trend, Denison has historically sold its uranium under a combination of long-term contracts and spot market sales. Three years back, Denison sold its principle uranium production source, the U.S. Mining Division. The long-term contracts were also sold with the U.S. Mining Division. Thus, as of March 2015, Denison does not have any long-term contracts in place. Thus, the company needs to enter into new contracts soon.
The uranium market might have been under pressure in the past, but there are signs of an improvement. In such an environment, I think Cameco is a better buy than Denison due to its presence in China, which will lead to long-term gains. Thus, investors can bet on Cameco to benefit from better uranium pricing.