Ann: Appendix 4D and Half Year Accounts , page-9

Unit Three of the Fukushima Daiichi Nuclear Power Plant. Photo: AFP
Nuclear may remain the only answer in a future where nations want energy without greenhouse gas emissions.

As the Friday afternoon shadows grew longer, Michael Jones thought the $10 million deal was in the bag.

The Impact Minerals boss had spent months negotiating a farm-in to the company's uranium deposit in Botswana, and finally the planets looked set to align.

''We were on the verge of what would've been a significant deal for us,'' he said, declining to name the suitor. ''They were going to leverage off their share price for the cash involved in that deal.''

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A Greenpeace activist outside Japan's Prime Minister Yoshihiko Noda's official residence. Photo: Reuters
But, just as the working week was drawing to a close that March afternoon, the deal suddenly changed.

Seven towering waves 15 metres high smashed into the eastern coast of Japan, claiming thousands of lives, homes and towns.

A nuclear power station was famously among the collateral damage and, while he was safe in Perth, Jones knew that he too would be affected by the catastrophe.

''I thought this is just gonna be a disaster for us,'' he recalled.

With a partial meltdown in progress at the Fukushima power station, the uranium sector would soon be swamped by the killer tsunamis, and Impact's Botswana deal was swept away with it.

''It basically disappeared over that weekend,'' Jones said.

A year on, the Fukushima disaster continues to weigh heavily on the industry, but an increasing number of investors believe the time is right to wade back into the uranium sector.

It's no secret that uranium stocks fell off a cliff following the Fukushima failure. More than $1.5 billion was wiped of the value of ASX-listed uranium plays on the first day of trading after the disaster.

Paladin Energy and ERA lost more than $1 billion of that and within six months both companies - aided by troubles in Europe and a few self-inflicted wounds - had shrunk to barely 20 per cent of their former selves.

The spot price for uranium fell sharply, and a round of impairment charges swept through the industry.

But the impact was most profound at the junior end of the market, where the fallout from Fukushima changed companies.

In an unfortunate collision between marketing and timing, Renaissance Uranium listed just three months prior to Fukushima as a ''pure-play'' uranium stock. Within months those ambitions had changed, and managing director David Christensen now describes the company as a ''broad based minerals exploration company''.

Renaissance is not the only uranium play now scouring its tenements for traces of other minerals to help pay the bills until uranium recovers.

Prior to Fukushima, Thundelarra Exploration had been devoting about 75 per cent of its time and money to developing uranium assets, but these days it spends more time talking about copper and gold.

''We have scaled right back on uranium … the company will be spending 10 per cent or 15 per cent of its effort on uranium this year and the rest would be predominantly copper and gold,'' said Brett Lambert, who stood down as managing director of Thundelarra this week. ''From a technical perspective it's not the right thing to do but from a market reality it's the only way to go forward.''

The trend repeated through the many company presentations at last month's Paydirt uranium conference in Adelaide, prompting one industry veteran to quip that copper and gold had never before enjoyed so much airtime at a conference devoted to uranium.

Many analysts and funds managers believe the punishment handed out to the uranium sector after Fukushima was overly severe.

Martin Place Securities keeps an index of 26 ASX-listed uranium stocks, which excludes the diversified majors like Rio Tinto and BHP Billiton in a bid to get an even purer account of movements in the uranium sector.

MPS research head Greg Barns said the combined enterprise value of the index was $11.4 billion in February 2011, yet by October the same set of companies were only worth $4.5 billion: an erosion in value of close to 60 per cent.

Over that same period, the uranium spot price fell by 32 per cent, while the long-term uranium price - considered the most relevant guide given it is the benchmark at which most suppliers sell their product - fell by closer to 15 per cent.

Barns said claims of an over-reaction from investors become even more compelling when you consider that many of those companies have continued drilling since Fukushima and can now point to larger, better understood, deposits of uranium in the ground.

''Given there was an increase in resource over that period that makes them very, very cheap right now. It's like David Jones having a fire sale.''

One of the ironies about 2011 becoming an annus horribilis for uranium stocks is that, aside from Fukushima, it was a year of encouraging regulatory reform for the sector in Australia.

The federal Labor Party relaxed its opposition to exporting uranium to India, and approvals were also finalised for mining the world's largest uranium deposit at Olympic Dam in South Australia. Final approval from the BHP board is the last hurdle.

The trend has continued into 2012, with NSW planning to overturn a 26-year ban on uranium exploration, and the West Australian Labor Party also appears to be softening its stance against uranium mines.

Beyond Australia, the regulatory reaction to Fukushima was a mixed bag. Decisions by Germany and Switzerland to accelerate the decomissioning of their ageing reactors (20 in all) attracted much publicity, despite the fact the resulting gap in power supply may be filled by imported nuclear power. Italy also voted against reviving its nuclear industry, dormant since 1987.

But faith has proved more resilient elsewhere. Japan is still operating two of its 54 reactors and will decide soon whether to restart those made idle after the Fukushima.

Japan is creating a new nuclear watchdog and has ordered power companies to conduct new ''stress tests'' that must be passed before reactors can be restarted.

Pressure for a restart is mounting from Japanese business groups who want more reactors working ahead of the northern summer in a bid to avoid the electricity rationing experienced last year.

Earlier this month, US regulators approved the first new nuclear power station in more than 30 years, while pro-nuclear governments in France and the UK announced a new pact to jointly foster nuclear power development.

While those sorts of news snippets tend to dominate media coverage, the most important decisions are being made in the developing world, where, according to the International Energy Agency, 61 reactors are under construction in 13 countries. That represents more than 90 per cent of the reactors under construction worldwide.

The portrait of nuclear intent looms even larger if the number of ''proposed'' reactors is taken into account.

The IEA says there are 38 nations proposing to build reactors and, if all keep to their published plans, the number of reactors will swell from 434 to 820 by 2030.

China is the driving force, with 27 reactors under construction and plans to build a similar number again between 2015 and 2020.

Approvals for that second tranche are on hold pending a review of the Fukushima failure and, while the findings have not been published, they are expected to declare that China's nuclear build must go on. An official was quoted this week as saying China was ''very likely'' to approve new reactors ''this year''.

Aggressive expansion in China, Russia, Korea, India and the UAE is the most important of several ''fundamentals'' that make the uranium bulls confident the sector will rebound.

The story is built upon a notion that nuclear will be the electricity source of choice in a future where nations will want energy sources free of greenhouse gas emissions.

The pitch is strengthened by the imminent demise of a program that converted old nuclear weapons into fuel for civil nuclear power plants.

Created by the US and Russia at the end of the Cold War, the program is expected to end next year, meaning about 10 per cent of the current nuclear fuel supply will disappear. Another factor expected to stoke demand is the 2011 slump in uranium prices: the depressed market conditions have meant the development of new mines has slowed, threatening an imbalance between supply and demand.

JPMorgan believes this could push up spot price for uranium by more than 60 per cent by 2014, and a recent survey of five analysts predicted a 15 per cent rally in the spot price this year alone.

BHP's plan to expand Olympic Dam has long stood as a bogyman over the industry, threatening to flood the market and pull down prices. But most analysts believe the long development times on that project mean uranium will not be produced there until 2019 and even then haphazardly.

Several organisations with the luxury of investing on long-term horizons - Chinese state-owned enterprises and major miners like Rio Tinto - seem convinced by the uranium bulls, having taken advantage of the Fukushima downturn to seize on uranium assets.

As the spot price was hitting its lowest point last year, Rio Tinto won an aggressive bidding war for a modest-size deposit owned by Canada's Hathor Exploration.

Chinese and Russian companies also were happy to wield the chequebook last year, targeting ASX listed uranium plays like Mantra, Extract Resources and Bannerman Resources.

There's evidence smaller, more specialist investors have put money back into uranium.

Fund manager L1 Capital held no stock in Paladin Energy four months ago but now ranks as the company's second biggest shareholder with 5.28 per cent.

Alliance Resources has also watched its share price more than quadruple over summer, although some of that is thought to be speculation the company will emerge victorious - and wealthier - from a legal stoush.

The Alliance managing director, Steve Johnston, said the buyers were anonymous but there was no doubt the sector was being watched by ''sophisticated investors gearing up'' for a supply shortage next year.

So, after a year of purgatory, is the renaissance of the uranium sector afoot? MPS's Greg Barns thinks so, saying the bottom of the market passed before Christmas and ''outstanding value'' was now offered by several ASX-listed uranium plays.

''I can't see the uranium price staying this low for long,'' he said.

Austock analyst Andrew Shearer agrees, saying many investors have under-estimated the coming shortfall in uranium supply.

''Most interest in the sector has come from end-users seeking to secure long-term supply.

''The equity sector has been slow to follow but we are now starting to see a glimmer of renewed interest,'' he said.

Shearer said the market was awaiting two signals: the restarting of reactors in Japan and confirmation from China that their nuclear building program will continue.

But mining stalwart Warwick Grigor is less optimistic, believing the memories of Fukushima are too fresh. ''I think this nuclear winter that we are putting up with at the moment is going to go on longer than the optimists are suggesting,'' he said.

Grigor, who runs an investment advisory business and also sits on the board of uranium play Peninsula Energy, agrees that nuclear is the logical future power source for a world wanting to reduce its carbon emissions, but he said such decisions aren't always based on logic.

''We are dealing with a world where common sense doesn't rule, even though there is horrendous pollution occurring every day from coal-fired power stations, that is not enough to make some people overcome that psychological fear of nuclear power plants,'' he said.

Grigor said there could be a sweet spot for companies already producing or close to producing uranium, and he said those with multiple mines were best placed. But he said these were exceptions, and there was no justification for being bullish about the sector as a whole.

''I would say 90 per cent of the uranium hopefuls out there are going to find that the road is just too hard for them,'' he said.

Whether uranium's future turns out to be boom or bust, Richard Henning reckons we will be closer to knowing the answer within six months.

His company, Stonehenge Metals, is the type of uranium explorer hurt most by Fukushima. Despite owning the biggest uranium deposit in South Korea - which sources 40 per cent of its power from nuclear - Stonehenge's shares fell from 24¢ last February to 2¢ by November and a current price just under 4¢.

Henning said many small companies had spent the past year draining their cash reserves as they tried to ride out the Fukushima storm, and they simply won't be able to continue in that vein through another year.

''A lot of the juniors who are in the same position as us are going to have to raise capital somewhere in the next six months,'' he said.

''You either raise the capital or you look at some form of merger or acquisition to build your balance sheet … either that or they just close shop and wait for something else to occur.''

Grigor agrees, saying mergers and acquisitions are likely to dominate the sector in the months ahead.

''I do think the sector needs a lot of rationalisation,'' he said.



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