The prospect of a lengthy disruption to Japan's nuclear power program sparked a direct hit on Canadian uranium company shares Monday, as investors worried about the loss of a key market and the potential that countries planning new reactors may delay their plans.
Shares of uranium mining companies of all sizes, led by giant Cameco Corp., faced a rout. Cameco was down 13 per cent, Uranium One Inc. was off 28 per cent and Paladin Energy Ltd. fell 21 per cent. Smaller uranium exploration companies such as Rockgate Capital and UEX Corp. also saw their stock battered.
An extended shutdown of reactors in Japan could dent the need for uranium because the country's large nuclear power industry accounts for about 12 per cent of worldwide demand, said Greg Barnes, an analyst at TD Securities Inc. He noted that after the Three Mile Island disaster in 1979 and the Chernobyl fire in 1986, "the global nuclear industry basically went into hibernation for 20 years."
While the recent boom in nuclear projects would not likely come to a halt, there is the potential that some projects could be delayed, Mr. Barnes said, and a downturn in public opinion toward the industry could hurt uranium company valuations.
On Monday, the Swiss government delayed its approval process for new reactors to review safety standards, Germany temporarily halted a plan to extend the life of its nuclear plants, and Senator Joseph Lieberman said there needs to be a temporary halt of new nuclear plant construction in the United States.
Still, Mr. Barnes said in an interview, most of the expansion in the nuclear industry will come in China and India, where many new reactors are planned and there is less likelihood of delay. The Chinese government has said it will continue to forge ahead but hopes to learn from the Japanese experience, while Indian Prime Minister Manmohan Singh said his country will do a technical review of its plants to make sure they can withstand big natural disasters.
Mr. Barnes downgraded Cameco - Canada's biggest uranium producer - to a "hold" from a "buy" rating and cut his 52-week target to $42 from $51, saying that in a worst-case scenario the company could lose 10 per cent of its sales volume in 2011 because of the Japanese problems.
On a conference call Monday afternoon, Cameco CEO Jerry Grandey said stock markets, "largely driven by emotion," overreacted in pushing down uranium company shares. He said he does not expect any "significant direct affects" on Cameco business, in the short or long term.
He said two of Cameco's customers were affected by the disaster and may temporarily defer part of their deliveries, but the company will still reach its financial projections for the year. "We ... don't see a dramatic effect on the fundamentals of our uranium business," which will thrive because of an expansion of nuclear plant construction in China, India, South Korea and elsewhere, Mr. Grandey said.
Patricia Mohr, a commodities specialist at Bank of Nova Scotia, said spot prices for Uranium are expected to fall about $8 a pound this week because of worries about Japan. However, because Japan buys most of its uranium through long-term contracts - as do most big purchasers - the lasting impacts of the crisis should be muted.
Uranium spot prices have recently been in the range of $66 per pound, down from a high of around $73 in early February when China's plans for nuclear power growth lit a fire under the market. The recent price dip was caused by a sell-off of uranium inventory by the U.S. Department of Energy, Ms. Mohr said.
Because of the catastrophe in Japan, "I'm sure the market will be nervous in the coming weeks, but after that it will steady," she said. Over the longer term, new demand from reactors being built in China, India, South Korea and Russia, will help buoy prices.
Analyst John Redstone of Desjardins Securities said he thinks demand for uranium will outpace supply at least through 2012, helping to keep prices up. Most reactor projects already begun or planned will likely be finished, he said, although the Japanese crisis could delay ones that have not yet been announced.