JPMorgan Cuts Uranium Price Forecasts, Citing Crisis

By Angela Macdonald-Smith

Oct. 8 (Bloomberg) -- JPMorgan Chase & Co. cut its forecast for uranium prices through 2010 because of increased spot-market sales of the radioactive metal in September and the potential for the credit freeze to slow nuclear power project development.

Spot prices may average $65.98 a pound this year, down from an earlier forecast of $69.62, JPMorgan said in a report. It cut its 2009 forecast by 14 percent to $64.75 and the 2010 estimate by 4.7 percent to $71.50. Paladin Energy Ltd. and Energy Resources of Australia Ltd. shares slumped in Sydney after JPMorgan lowered earnings estimates for the uranium producers.

Uranium-oxide spot prices, which reached a record $138 a pound in June last year, dropped $4 to $49 in the week ended Oct. 6, The Ux Consulting Co. LLC said on its Web site. The ``extraordinary'' amount of uranium sold in September by financial and hedge funds means utilities may now be well- supplied and the pick-up in sales typical of October-November may not occur, JPMorgan said.

``Driven by the fall-out of the credit crisis, and what we see as liquidation of spot uranium positions, we have reduced our uranium price forecasts,'' JPMorgan said in the report.

Paladin dropped 58 cents, or 18 percent, to A$2.70 in Sydney trading, while Darwin-based Energy Resources lost 4.6 percent to A$13.70.

JPMorgan cut estimated profit for Perth-based Paladin, which produces uranium in Namibia, by between 17 percent and 19 percent through to the 2010 financial year and trimmed its target price for the shares to A$6.70 from A$7.00.

Nuclear Renaissance

JPMorgan pared projected earnings for Rio Tinto Group- controlled Energy Resources by as much as 4.1 percent over the next two years and lowered its share-price target to A$21.80 from A$22.00.

High up-front capital costs for nuclear power projects may slow the so-called nuclear renaissance, the securities firm said. Nuclear power stations can cost between $1,400 and $3,500 per kilowatt-hour of installed capacity, it said.

Prices may get some support because uranium mine developments may also be deferred as emerging project developers experience increasing difficulty in raising capital, reducing supply, it said.

JPMorgan left its long-term uranium price forecast unchanged at $65 a pound.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net