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Uranium Week: Here They Come

Weekly Reports | Sep 05 2023

This story features BOSS ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BOE

Buyers of uranium have not waited for the northern summer to end, as had been expected, to move into the market.

-Volumes up in August, U3O8 spot price responds
-Term prices increase
-Cameco downgrades production guidance
-Morgan Stanley suggests “uranium awakes”

By Greg Peel

The end of the northern summer for the uranium industry came earlier than expected, industry consultant TradeTech reports, with transactional activity picking up significantly during the last week of August.

There had been an expectation there would be an uptick in activity in September and October as buyers returned to the market after the end of summer holidays.

But a number of buyers, looking to move ahead of what is expected to be a crowded buying arena in the next few months, took the decision to advance their plans and initiated purchases last week.

A total of eleven transactions were concluded in the spot market, with prices increasing sharply as each new tranche of demand appeared.

TradeTech’s weekly spot price indicator rose to US$61.00/lb to the Friday, September 1, up US$2.50 for the week.

The price at end-August was US$61.35/lb, up from US$56.50/lb at end-July.

Five transactions calling for the delivery of over 4.1mlbs U3O8 were concluded in the term market during August. Four utilities, including a US utility seeking 1.3mlbs for delivery over the 2026-2030 period, concluded transactions and selected preferred suppliers this month.

TradeTech’s term price indicators have risen to US$62.00/lb (mid-term) at end-August, up from US$57.25/lb end-July, and US$60.00/lb (long), up from US$57.75/lb.

At US$60.00/lb, TradeTech’s long term price indicator has reached a level not seen in nearly eleven years. The price hit a post-Fukushima low of US$28.00/lb in mid-2018 and has since risen 114%.

Much of that increase has occurred over the last two years as buyers and sellers have recognised a structural supply deficit in the market that has been amplified by covid-related interruptions to production, supply chain concerns, and rising production costs.

Stop Press

Canada’s Cameco provided a market update yesterday regarding challenges at its Cigar Lake mine and Key Lake mill that are expected to impact the 2023 production forecast.

Mining activities at the Cigar Lake operation were initiated from a new zone in the orebody in the second quarter of this year, which impacted productivity, Cameco reported. Equipment reliability issues emerged which further affected performance. The mine is scheduled to enter its planned annual maintenance shutdown that will run through most of September.

At the Key Lake mill, ramp-up activities remain ongoing. However, Cameco notes there is continued uncertainty regarding planned production in 2023 due to the length of time the facility was in care and maintenance, the operational changes that were implemented, availability of personnel with the necessary skills and experience, and the impact of supply chain challenges on the availability of materials and reagents. These factors have combined to impact production at Key Lake.

At the Cigar Lake mine, Cameco now expects to produce up to 16.3mlbs of U3O8 this year, a reduction from the previous forecast of 18mlbs. Production from the McArthur River/Key Lake operations for 2023 is anticipated to be 14mlbs, down from the previous forecast of 15mlbs.

The news sent uranium mining stocks surging yesterday, including those listed in Australia. Most notably, Boss Energy ((BOE)) rose 9.2%, ahead of a production restart of its Honeymoon mine in South Australia, Paladin Energy ((PDN)) rose 6.9% ahead of a production restart at its Langer Heinrich mine in Namibia, and Deep Yellow ((DYL)), which is looking to production from Namibia by end-2025, rose 7.1%.

Uranium Awakes

Uranium Awakes is the title of a report released yesterday by Morgan Stanley. As the World Nuclear Symposium takes place in London this week (likely leading to a quieter market), spot uranium is at a 16-month high, approaching the analysts’ US$60/lb September quarter price forecast.

Morgan Stanley gives a nod to the above news from Cameco, and the ongoing situation in Niger as impacting the supply side.

Uranium is one of several parts of the power complex that have been rallying, the analysts note, along with thermal coal and gasoil cracks leading the oil price rally, given robust global power demand.

Back in June, Morgan Stanley noted utility contracting was not yet at full replacement rate, but Cameco now reports it sees "clear evidence that the broader uranium market is moving toward replacement rate contracting for the first time in over a decade".

On top, Japan continues to restart nuclear reactors, bringing the total operating reactors to 11 out of 33 operable. Finally, the analysts acknowledge that with Russia's dominance of global enrichment capacity, any move from Western utilities to phase out this supply would likely drive an enrichment bottleneck. Morgan Stanley estimates overfeeding could boost annual U3O8 demand by up to 25mlbs.

Ahead of a return of end-user demand, much of the spot uranium price increase over the past few years has been driven by listed financial investment funds, speculating on what is now coming to pass by stockpiling material. Most influential among them has been the Sprott Physical Uranium Trust.

The SPUT has done rather well, and initially would not have anticipated either a pandemic or a war. The fund has not been active since April, Morgan Stanley notes.

But as is occasionally the case, the value of listed units in the SPUT has fallen to below the net asset value of uranium held. The analysts note that when this happened in February, the SPUT stepped in and purchased 1.3mlbs. In September/October last year, it purchased 1.5mlbs.

Morgan Stanley concludes a number of factors have come together to provide support for uranium prices. Fears over supply disruptions may boost purchasing activity in the short term, and any physical purchases from uranium funds would also provide support.

Also: the analysts do see room for supply growth in 2024 from Canada and Kazakhstan, which narrows the deficit next year, potentially capping upside.

Uranium companies listed on the ASX:

1AE 0.0700 0.00% $0.30 $0.05
AGE 0.0510 0.00% $0.08 $0.03
BKY 02/01/2008 0.3850 0.00% $0.80 $0.25
BMN 02/01/2008 2.2900 0.00% $2.44 $1.19 $3.200 39.7%
BOE 3.9200 0.00% $3.92 $1.97 $3.540 – 9.7%
DYL 02/01/2008 0.9800 0.00% $1.25 $0.48 $1.040 6.1%
EL8 0.4800 0.00% $0.64 $0.27
ERA 02/01/2008 0.0400 0.00% $0.30 $0.03
LOT 0.2300 0.00% $0.28 $0.15 $0.530 130.4%
NXG 9.8000 0.00% $10.01 $0.00
PDN 02/01/2008 0.9350 0.00% $0.96 $0.52 110.7 $1.123 20.1%
PEN 02/01/2008 0.0910 0.00% $0.20 $0.09 $0.270 196.7%
SLX 02/01/2008 3.4300 0.00% $5.32 $2.56 $5.800 69.1%

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