Uranium Week: Uranium Equities In Focus

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Despite the uranium spot price continuing to move in a tight range, uranium equities continue on an upward trajectory.

-Equity market excited about a better outlook for uranium prices
-Nuclear energy recognised as an essential element of the clean energy mix
-Uranium spot price falls marginally

By Mark Woodruff

Equity markets are increasingly recognising the requirement for further investment in uranium mines. Since Shaw and Partners last reviewed ASX-listed uranium stocks at the end of November, the sector is up over 100%.

At a virtual uranium conference for institutional investors and dealers, the investment management firm assessed the longer-term fundamentals for the sector are becoming increasingly appealing. Nuclear energy is now recognised as an essential element of the clean energy mix, which potentially enables nuclear power to increase its contribution from currently around 10% of global electricity. Consensus believes uranium demand needs to increase by over 100% from current levels by 2050 if decarbonisation is to take place.

Re-investment in uranium mines is required. Most industry forecasters believe that a long-term sustainable uranium spot price based on cost curve support is in the US$40-50/lb range. Shaw and Partners assume a multi-year spike to US$80/lb, before settling to a long-term U3O8 spot price assumption of US46/lb in 2028.

Shaw lists signs of improvement for the sector including inventories being drawn down due to production curtailments from key producers Kazatomprom and Cameco. Additionally, the US election has passed and the US President has signed off on the establishment of a strategic uranium reserve. Finally, utility companies are beginning to re-engage with producers on long-term contracts and the US Russian Suspension Agreement (RSA) has been extended.

Utilties will have to act in 2021 to cover a shortage of term contacts from 2023, given the 2-3-year upfront contract lock-in period, suggests Shaw.

On the supply side, several of the world’s largest uranium mines will cease production over the coming years, starting with Australia’s Ranger mine and Niger’s Cominak mine this quarter. These mines alone are the equivalent of circa 6% of 2019 global production.

For a combination of uranium price leverage, underlying asset quality and project lifecycle phase, Shaw prefers the following ASX-listed stocks: Paladin Energy ((PDN)), Boss Energy ((BOE)), Peninsula Energy ((PEN)), Lotus Resources ((LOT)) and Bannerman Resources ((BMN)).

Country news 

On February 2, Poland’s cabinet adopted a new energy policy that extends to 2040, 12 years beyond the closing date of the previous policy.

Poland currently produces most of its electricity from coal and is the only European Union member state that has not joined the commitment to achieve climate neutrality by 2050.

The new policy calls for Poland to generate 23% of its electricity supply from renewable sources by 2030, compared with 13% today. This foresees an increase in wind energy, especially from farms in the Baltic Sea, and the opening of Poland’s first nuclear power plant in 2033. 

Uranium pricing

TradeTech's Weekly Spot Price Indicator is US$29.55/lb, down -US$0.20 from last week’s Indicator.

The weekly spot uranium price has declined nearly -3% in 2021 while spot price volatility continues to decline on limited market activity. The average weekly uranium spot price in 2021 is US$30.11/lb, US$0.40/lb above the 2020 average.

Spot market activity for the first week of February was muted, with a total volume of just 200,000 pounds U3O8 traded in one transaction. TradeTech explains spot market activity has been especially slow to develop in the new year and supply remains sufficient to meet current spot market demand.

TradeTech's term price indicators are US$33.75/lb (mid) and US$37.00/lb (long). 

New demand emerged in the term market last week, with a US utility seeking 665,000lbs for delivery in the 2021-2025 time frame.

Meanwhile, a number of non-US utilities continue to evaluate or actively seek offers for material in the mid-term and long-term delivery windows. Certain utilities are pursuing both formal and "off-market" discussions with potential sellers. This is in an effort to diversify portfolios of sellers, improve security of supply, or amend existing contract commitments.

US utilities have yet to pivot from a protracted period of uncertainty rooted in several trade issues under review last year and remain largely absent from the term uranium market, explains TradeTech.

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