Uranium Week: Market On Edge

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Media reports suggest Russia’s state-owned uranium company has offered Russia’s military whatever it needs, prompting renewed calls for sanctions.

-Sanction concerns again hang over global uranium supply
-U3O8 spot market remains quiet
-Support for nuclear energy at Davos
-Outlook for 2023

By Greg Peel

Since last year’s Ukraine invasion, a vast variety of sanctions have been placed on Russia, and steps taken with regard energy supply, but the question hanging over the nuclear energy market in the ensuing period has been will there, won’t there, be sanctions placed on Russian uranium exports?

Russia’s uranium conversion capacity is some 38% of global capacity and Russia’s enrichment market share is some 48% of global supply.

To date, no such sanctions have been forthcoming, likely because of the energy crisis, most specifically in Europe, restraining oil and gas imports. Given the reliance of France and other European countries on nuclear power, to restrain another source at this time would only exacerbate the situation.

However, media reports late last week have suggested Russia’s state-owned nuclear company, Rosatom, has offered to supply Russia’s military complex with certain goods. In response, Ukrainian officials renewed their call for sanctions on Russia’s nuclear company and its officials, which drew concern from nuclear industry participants.

While nuclear power companies across the globe spent last year frantically attempting to secure future supply from anywhere other than Russia, more immediate needs are still being covered by existing Russian supply contracts. The global nuclear power industry cannot yet afford to lose this supply. Nor, it would seem, does Russia wish to lose the revenue stream, as no retaliation has been forthcoming vis a vis sanctions elsewhere in the form of uranium supply cuts.

The uranium market is thus nervous. Yet industry consultant TradeTech reports only two smallish transactions in the spot market last week. The typically quiet January period remains in place, and TradeTech’s weekly spot price indicator fell -US$1.40 to US$48.80/lb last week.

Term markets were a lot more active in 2022, with utilities shying away from a spot market dominated by general financial market volatility, which did not reflect true demand-supply balance. While no new term market transactions were reported last week, TradeTech expects US and non-US utilities to be active buyers in term markets in 2023.

TradeTech’s term price indicators remain at US$49.00/lb (mid) and US$53.00/lb (long).

Postcard from Switzerland

Hot topics at last week’s World Economic Forum were inflation, Ukraine and the path toward a green energy future.

Suffice to say nuclear power received notable attention, TradeTech reports, including the Korean President suggesting “As a key means to bolster our energy security while reducing our reliance on fossil fuels, we must turn our attention to nuclear power and clean hydrogen. Nuclear power plants enable a stable electricity supply while reducing greenhouse gas emissions.”

The Forum also featured a standing room-only screening of Oliver Stone’s documentary film Nuclear Now, which advocates for nuclear power to play an expanded role in addressing climate change, and is based on the novel A Bright Future by Joshua S. Goldstein and Staffan A. Qvist.

The Outlook for 2023

The uranium spot price rose 14% in 2022, having risen substantially in 2021 due to the dominance of newfound financial entities providing a vehicle for speculative investment. The 14% gain reflected increased demand meeting constrained supply, but it was an uphill battle given spot uranium’s new role as a speculative plaything, and last year’s general market volatility.

2022 saw everything from stocks and bonds to cryptocurrencies sold off in the face of inflation and recession fears, and uranium was often dragged down in the wash. Despite the 14% spot price gain, global uranium mining stocks fell an average of -21% over the year, as measured by Canaccord Genuity.

While Canaccord remains cautious in the near term as recessionary fears continue to impact global market sentiment, from a fundamental perspective the argument to maintain exposure to uranium remains extremely strong, the broker suggests.

Demand for nuclear power continues to increase as the transition to clean energy gains momentum and energy security becomes of increasing importance. At the same time, uranium supply sits near a decade low, and geopolitical tensions continue to realign global supply chains.

Canaccord expects 2023 to be another strong year for term contracting. History suggests that contracting begets more contracting, and while the broker is encouraged by the success seen in 2022 (turnover of 114mlbs was the highest level in ten years), it still thinks there is a long way to go with annual contract volumes still well below replacement rate.

The average term price rose 26% in 2022 and, in Canaccord’s view, will likely continue its trend higher against a backdrop of low primary mine supply, declining inventory levels, and shrinking secondary supply.

In the near term, amid macro uncertainty, Canaccord recommends adding exposure to physical uranium (eg via the Sprott Physical Uranium Trust or Yellow Cake Plc) believing there is limited downside to current spot pricing (with clear support around US$48/lb), yet material upside potential.

However, as 2023 progresses and market sentiment improves, the broker would add exposure to miners/developers, which offer substantially more leverage.

Canaccord’s global preferences include Australian-listed Paladin Energy ((PDN)) and Boss Energy ((BOE)).

Uranium companies listed on the ASX:

ASX CODE	DATE	LAST PRICE	WEEKLY % MOVE	52WK HIGH	52WK LOW	P/E	CONSENSUS TARGET	UPSIDE/DOWNSIDE
AGE	20/01/2023	0.0400	– 7.14%	$0.12	$0.03
BKY	20/01/2023	0.3300	6.67%	$0.64	$0.21
BMN	20/01/2023	1.9500	– 3.62%	$2.49	$0.15
BOE	20/01/2023	2.4400	– 5.00%	$3.10	$1.61		$3.200	31.1%
DYL	20/01/2023	0.8100	– 5.63%	$1.25	$0.55
ERA	20/01/2023	0.2600	15.91%	$0.42	$0.16
LOT	20/01/2023	0.2400	– 6.25%	$0.46	$0.18
NXG	20/01/2023	6.5800	1.82%	$8.99	$0.00
PDN	20/01/2023	0.7900	– 3.80%	$0.97	$0.53	-180.1	$1.000	26.6%
PEN	20/01/2023	0.1500	– 9.38%	$0.28	$0.12
SLX	20/01/2023	4.4600	3.95%	$4.48	$0.99

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