Uranium Week: Pure Speculation

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Only one buyer appeared in the spot uranium market last week, and a rather familiar one.

-SPUT in control of the market
-What’s driving newfound support for nuclear energy?
-Australian uranium stocks to consider

By Greg Peel

The policy shock delivered by the Fed in January led the Sprott Physical Uranium Trust to take time out from its planned uranium purchases as financial market volatility played out. As a result, the uranium market in general went quiet.

This changed two weeks ago when the SPUT returned in force to acquire another 1mlbs U3O8 in the spot market. Traders and other speculators jumped on the bandwagon, leading to 12 transactions totalling 1.5mlbs for the week.

Last week the spot market went relatively quiet again, likely reflecting the rise in geopolitical angst, but it didn’t stop the SPUT. A total of 600,000lbs U3O8 changed hands, and the SPUT was the only buyer.

Industry consultant TradeTech’s weekly spot price indicator remained unchanged at US$43.25/lb.

(Term prices unchanged at US$44.50/lb (mid) and US45.25/lb (long)).

The spot uranium price has risen over 50% year on year, and not because utilities have been jumping over themselves to restock. In 2021, 70% of all spot uranium was purchased by speculative funds, including the SPUT, Yellow Cake Plc and others, TradeTech notes.

So why the accelerating speculative interest?

All the ducks line up

The Fukushima disaster resulted in a global shift in sentiment away from nuclear power, and a subsequent collapse in the uranium price. From public resistance in Japan to an energy policy about-face by the then German government, it appeared only China may be left to wave the nuclear flag.

Uncommercial uranium prices led to the shutdown or curtailment of production across the globe, ahead of further shutdowns or production-cut extensions forced by the pandemic. But at the same time, rolling global natural disasters woke governments up to the fact climate change policy was not something that could be shrugged off with vague promises, or left to gather dust in the “to do” tray.

Yellow Cake Plc was among the first speculative uranium funds to anticipate a swing in sentiment back towards nuclear energy as a “green” alternative. The SPUT has since taken the baton and is still running. Speculative funds initially got in ahead of the curve, but more recent developments have only served to confirm their foresight.

Australian stockbroker Shaw & Partners has listed no less than eight reasons why upside risk remains for the uranium price:

– Ongoing production discipline from major producers Cameco and Kazatomprom, which together represent 60% of global supply

– Mine maturation leading to the closures of Energy Resources of Australia’s ((ERA)) Ranger mine, and the Cominak mine in Niger

– The entry into the market of aforementioned speculative funds – self-perpetuating

– Two Chinese state-owned enterprises signing long term contracts with Kazatomprom

– Cameco becoming more active in term contract markets, returning to provide supply to actual end-users

– France announcing plans to build at least 6 and up to 14 new reactors by 2035

-The US government commitment, under the new infrastructure bill, to support reactor life extensions

– EU draft taxonomy declaring nuclear power to be a “green” alternative in the transition to renewable energy

Shaw & Partners remains positive on the uranium sector on a multi-year thematic, based on a decade of underinvestment, and longer term demand supported by increased electrification and decarbonisation.

How to play?

Shaw has seven Australian-listed uranium producers/developers under coverage. The broker’s preferred choice is Paladin Energy ((PDN)).

Buy ratings are also in place for Boss Energy ((BOE)), Peninsula Energy ((PEN)) and Vimy Resources ((VMY)).

Still in the development phase are Lotus Resources ((LOT)) and Bannerman Energy ((BMN)), for which Shaw has Hold ratings.

Outside of the mining space, Silex Systems ((SLX)) engages in the research and development, commercialisation, and license of SILEX laser uranium enrichment technology in Australia. Shaw believes the stock to be materially undervalued if the company can continue to de-risk its enrichment technology, and hence has a Buy rating.

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