While acknowledging the short-term market impact of the Japanese tsunami, the industry believes the long-term uranium market fundamentals are sound. There is strong and increasing demand expected for new nuclear power reactors, especially from China, the US, Russia, Ukraine and India.

The latest Resource Capital Research report on the industry points out that while Germany has announced it will close all 17 of its nuclear power reactors by 2022, many countries have stated their continued commitment to nuclear energy, most notably and arguably of greatest influence, the US.

This optimism is shared by the Australian government, which believes Australia’s uranium exports could double in the coming years.

China is crucial, with a senior Chinese official forecasting vigorous growth in its nuclear power industry.

Guobao Zhang, of the Chinese National Energy Commission, told a recent conference in Perth nuclear power was essential if the country was to reduce its dependence on fossil fuels.

There are 13 nuclear plants in China with another 28 under construction to increase capacity to 40 gigawatts in the next four years.

At the same conference Rio Tinto chief development officer, uranium Andrew Lloyd acknowledged that the Fukushima disaster had been “a major setback” but he was confident about the long-term outlook.

“We can rely on the price signals in the market to pull new projects through,” Lloyd said.

China’s hunger for uranium was confirmed when the Sichuan Hanlong Group made a $A145 million bid for Perth company Bannerman Resources.

This is the first uranium deal in Australia since Fukushima.

Bannerman is expecting a decision by next year on development of what it claims is one of the biggest undeveloped uranium deposits in the world, at Etango, in Namibia.

At the time of writing Bannerman was negotiating with a number of potential participants.

The RCR report points out that the immediate effect of the tsunami was a predictable sharp drop in uranium prices.

Uranium’s price plummeted in mid-March to $US49 per pound. Before the eathquake it had been trading at $67.75/lb, a 12 month high.

RCR expects the spot market to move in the range of $50-60/lb in the near future, but remain under downward pressure in the coming months.

An indicator of market price expectations three months ahead points to a spot price of $48/lb.

At the end of May the contract price was $68/lb. While the effects of the earthquake were expected to have an impact on discretionary inventory purchases, and further delays to reactor construction programs were anticipated, the effect on the contract price was expected to be temporary, with the price remaining around $60-75/lb.

RCR says this level should support development decisions at a number of advanced uranium development projects, particularly in Namibia, such as Extract Resources’ large scale Husab project.

The report suggests an emerging trend will be for prices to support the development of projects.

Greenland Minerals and Energy recently released a technical update for its Kvanefjeld rare earth element-uranium-zinc project. That update showed potential production of 40,000 tonnes per annum of total rare earth oxides and 9.5 million pounds per annum of uranium oxide, for the first 15 years of the project. Commissioning is expected in 2015. Not surprisingly, Greenland’s shares have been among the best performers in the sector over the past 12 months.

Other mines in the wings are BHP Billiton’s Yeelirrie, in Western Australia, 7.7Mlbpa; Husab, 15Mlbpa and Cigar Lake in Canada, 18Mlbpa. The long-term contract uranium price is relatively stable. It was recently $68/lb, down from $73/lb at the end of February.

Whatever the relatively benign outlook for the next few years, the miners certainly suffered from the effects of Fukushima, with a consistently negative share price performance compounding declines of the previous three months.

Cameco is down 13% (three month performance – 19%), Denison Mines is 27% lower (three month performance – 37%), Uranium One is down 34% (three month performance – 42%), Energy Resources of Australia is 16% lower (three month performance – 51%) and Paladin is down 25% (three month performance – 35%).

ERA had the largest fall of the group, down 51% over three months and 70% over 12 months. However, there was recently good news from Ranger with earlier than expected recoveries in production, although it will take some time to reach design capacity.

The Merrill Lynch Uranium Equity Index (a global basket of uranium equities) was down 19% in the month before the review, down 28% over three months and 9% lower over the past 12 months.

The Japanese crisis was not the only thing causing the uranium sector to face near-term price uncertainty. Broader equity market concerns over slow US economic activity and ongoing sovereign debt issues in the advanced economies also took their toll.

Australian explorers, meanwhile, press on despite a political dichotomy that does not seem close to resolution.

Uranium exploration and mining is permitted in South Australia, the Northern Territory and Western Australia Uranium exploration alone is permitted in Queensland but mining is banned, as it is in Victoria and New South Wales.

The Australian government is encouraging projects and urging the recalcitrant states to relent.

In WA the Liberal-National coalition government supports mining, but the Labor Opposition has not revoked its policy opposing it.

The federal government’s enthusiasm is evident. Resources Minister Martin Ferguson said a doubling of Australian production was possible in response to expected strong growth in demand from the world nuclear electricity industry.

He predicted the uranium and nuclear energy sectors would emerge stronger, safer and more resilient from the difficulties surrounding the nuclear emergency at the Fukushima nuclear plant in Japan.

In states where uranium mining is prohibited Ferguson said continuing world demand for Australia’s abundant uranium resource would put those policies under pressure. “There are identified deposits in Queensland and industry has expressed its interest in potentially developing these,” he said.

“I expect therefore that this is a policy issue that the Queensland government will continue to confront.

“Uranium exploration and mining have long been banned in New South Wales and Victoria. This limits our knowledge of potential deposits in these states.

“The issue of uranium exploration and mining is something I believe the incoming governments in both New South Wales and Victoria will need to consider.”

As several proposals for uranium mines come closer to fruition in WA, the state government has imposed a 5% royalty on the metal.

Anticipating the commissioning of these mines, WA Mines Minister Norman Moore, estimated the state would receive about $10 million in royalties in 2013-14 and nearly three times as much the following year – obviously anticipating a rapid increase in output.

The conservative government swiftly revoked a longstanding ban on uranium mining when it gained power in 2008, prompting a flurry of examination of deposits proved up decades ago.

This article first appeared in the September 2011 edition of Australia’s Mining Monthly magazine