Uranium Week: Uranium Equities Fall On Reactor Fears

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As the uranium spot price rises 14% over the last eight weeks, uranium shares tumble on concerns over a Chinese nuclear reactor.

-News of damage inside a Chinese nuclear power plant
-Yellow Cake Plc raises US$88m to fund uranium purchases
-Uranium spot price rises by less than 1% for the week

Shares of uranium equities posted significant losses last week following media reports of damage to a nuclear power plant in China.

Framatome and Électricité de France, the French companies involved in the construction and operation of two nuclear reactors at Taishan, acknowledged difficulties had occurred in the operation of Reactor 1.

The Chinese government said that “about five” of the uranium fuel rods inside a nuclear power plant in southeastern China had been damaged, but added that no radiation had leaked out of reactors at the site.

In a June 8 memo, Framatome informed the US Department of Energy the Chinese safety authority has continued to raise regulatory "off-site dose limits." It also said the company suspects that limit might be increased again so as to keep the leaking reactor running, despite safety concerns for the surrounding population.

Some of the larger falls on the Toronto stock exchange included Cameco and Uranium Participation Corp, which closed last week down -10.6% and -8.3%. Meanwhile in Australia, Paladin Energy ((PDN)), Boss Energy ((BOE)) and Deep Yellow ((DYL)) fell -20%, -13.5% and -15%, respectively.

In an explanatory note on the International Atomic Energy Agency website, fuel cladding failures are said to be a known and not uncommon occurrence within the operation of nuclear power plants. Nuclear power plants have operating procedures which allow the ongoing monitoring of the damaged fuel elements and operations can continue within the pre-defined safe operating parameters. 

There are operating strategies available to minimise the impact of a fuel failure and ultimately, if necessary, the reactor could be safely shutdown before the technical specification limits were to be reached. The damaged fuel elements would then be inspected and replaced, and the reactor returned to operations.

Company news

Strong investor interest prevailed for Yellow Cake Plc last week, despite the volatile sharemarket, due to the Taishan power plant news. 

The company has moved forward with converting 25m shares in order to raise approximately US$88m to purchase 1-2mlbs of uranium from Kazatomprom.

The company has increased its overall holdings in 2021 to what will soon be over 15mlbs from 9mlbs, under its “buy and hold” investment strategy.

ASX-listed Boss Energy yesterday released an updated feasabilty study identifying lower costs and increased financial returns for the 100%-owned Honeymoon Uranium Project in South Australia. The findings show the project is set to enjoy extremely robust margins, given contract prices for uranium are currently in the high US$30's/lb. The study found that proposed changes to Honeymoon's processing method would cut all-in-sustaining costs by -16% to US$25.62/lb.

Uranium pricing 

TradeTech's Weekly Spot Price Indicator rose slightly to US$32.50/lb, an increase of US$0.10 from last week's Indicator.

The Indicator has risen nearly 14% in the last eight weeks, and almost 7% in 2021, averaging a 0.3% weekly gain. The average Weekly Spot Price Indicator in 2021 is US$29.96/lb, US$0.25 above the 2020 average.

A total of 300,000lbs U3O8 was traded in deals reported for the week, compared to last week’s volume of almost 1mlbs.

Sellers maintained an optimistic outlook, spurred in part by the above-mentioned announcement by Yellow Cake Plc. Additionally, increased utility demand, both formal and informal, is influencing the outlook of sellers as they assess when and at what level they should actively offer their material, explains TradeTech.

Over 2.5mlbs is being sought by utilities in various forms (U3O8, UF6, and enriched uranium product [EUP]) for delivery between the latter part of 2021 and extending into 2022.

TradeTech's term price indicators are US$31.50/lb (mid) and US$35.00/lb (long).

Demand continues to increase in the mid-term delivery period as buyers step forward to acquire material with delivery beginning as early as 2022. Thus far, TradeTech reports buyers have seen relatively flat prices when compared to the price increases noted in the spot uranium market, especially if the transaction involves limited quantities and price exposure for the seller.

As buyers expand their requests into the long-term delivery period, there is a marked increase in prices beyond the 2025 delivery window, although uranium sellers have demonstrated a willingness to compete aggressively, especially for end-user business regardless of the delivery period.

For now, some sellers are willing to accept lower prices for long-term deliveries in expectation that the rise in spot uranium prices will eventually lead to an increase in the term uranium price. This is because the term price historically lags the spot uranium price, explains TradeTech.

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