Deutsche Bank has initiated coverage of uranium miner and producer, Energy Resources of Australia (ASX: ERA), with a Buy recommendation.
Resources analyst, Scott Finlay initiated coverage with an A$16.41 price target.
Mr Finlay said “We believe that uranium oxide prices are headed higher, that this is not a short term phenomenon, and that ERA’s share price does not yet fully factor in this view.
“Under-investment in mining during 1980s and 1990s as a result of low uranium prices has led to a significant gap between primary supply and demand. Meanwhile, a very recent development in the uranium market has been a significant increase in financial investor interest in uranium.
”ERA is a mature company with a track record of paying dividends, and we expect this to continue”, he noted.
Based in the Northern Territory of Australia, ERA is the world’s third largest uranium producer, exporting its product to Asia, Europe and North America, for use in nuclear power facilities for the generation of electricity.
In 2005, three publicly listed uranium producers Cameco, Areva and ERA accounted for 52% of world production. Whilst Rio Tinto and BHP Billiton are also significant producers, the impact of uranium on their earnings is minor due to their product diversity.
ERA is 68.4% owned by Rio Tinto Australia.
Equity rating recommendations are based on expected total return (including dividends):
Buy: 10% or more over a 12-month period
Hold: between -10% and 10% over a 12-month period
Sell: -10% or worse over a 12-month period
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