Uranium Week: Aussie Stocks Heavily Oversold?

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: ERA

Industry consultants TradeTech reaffirm the longer term bullish view on nuclear energy and brokers question whether its time to buy Australian uranium stocks?

-U308 transaction volumes remain subdued
-Nuclear energy demand outlook still robust
-Petra Capital’s Top Picks

By Danielle Ecuyer

The U308 spot market remained becalmed over the last week with limited activity, reports industry consultant TradeTech.

Volatility in global stock markets didn’t help activity levels. The spot price declined -US$0.50 to US$81.50lb and TradeTech recorded four transactions. One was conducted on Monday at US$82lb and three transactions during the middle of the week at US$81.50/lb.

The Mid-Term U308 price indicator is unchanged at US$90lb and the Long-Term Price Indicator stands at US$82lb.

TradeTech also points to the resilience in the prices, even spot, which the consultant attributes to the positive nuclear energy demand backdrop.

Holtec International is one of the latest good demand news stories with the company stating its Palisades Nuclear plant is due to re-open in 2025, post two years of ceased operations. 

The plant will require approval from the US Nuclear Regulatory Commission. A decision is anticipated in August.

Generative Ai and the demand for reliable power sources for data centres is also driving demand. TradeTech highlights the CEO of Dominion Energy who announced on its earnings call it is “open” to co-locating a data centre at its Millstone Nuclear Power Plant in Connecticut.

The industry consultant also points to the Canadian push to expand nuclear generation. Ontario Power Generation is planning the development of small modular reactors at the Darlington nuclear site in conjunction with General Electric and Hitachi Nuclear Energy.

On BloombergNEF’s projections, China’s nuclear power capacity can surpass France’s capacity and the USA by 2030. China has 30 reactors under construction.

The Australian government’s decision not to renew Energy Resources of Australia’s ((ERA)) license for the Jabiluka uranium mine has resulted in the company’s response to sue the responsible Minister and others over the decision. 

Uranium stocks: mind the gap

Petra Capital will not be dissuaded by the share price action of the ASX listed uranium stocks which have experienced an estimated -55% decline in market capitalisation since January 1st, compared to the uranium term price which has risen 18% year-to-date.

The broker highlights the recent volatility in global share markets has not helped with the average year-to-date decline in uranium producers down -12%; brownfield (sites) off -16%; greenfield (sites) -23% and explorers off -29%.

Despite forecast demand continuing to grow and to exceed supply, Petra Capital stresses the contracting market remains “extraordinarily quiet”. Some 31mlbs of contracts have been transacted year-to-date compared to 108mlbs in the 1H2023.

Although 2023 was a robust year, transactions are below replacement rates.

The U308 spot price has been range bound. Uncertainty in the market is attributed to the US waiver process with Russia providing 27% of purchased enrichment capacity in 2023, compared to the August 11, 2024 importation ban, subject to the Department of Energy’s potential waivers.

Utilities both in the US and internationally are believed to be awaiting further price certainty and Petra notes US buyers may have pulled through Russian supplies into 2023 and 2024 (no numbers are available yet).

The broker’s preferred uranium stocks includes Lotus Resources ((LOT)), with a major de-risking of the company post the signed mine development agreement for Kayelekera, including better royalty rates at 5% and a 30% corporate tax rate. Lotus is Buy-rated with a 41c target price.

Bannerman Energy ((BMN)) is another top pick. Petra is attracted to the cheaper valuation compared to its Namibian peer, Deep Yellow ((DYL)). The broker likes the Etango project which has its mining license and permitting. Bannerman is Buy-rated. Target price $4.51.

This cycle, Petra believes “new frontiers and projects” will be required. This places its two top picks with such exposure, Alligator Energy ((AGE)) and Aura Energy ((AEE)) firmly in the spotlight.

Alligator is developing its Samphire project in South Australia. The broker expects current drilling will provide an increase in the resource plus  an increase in the start up potential production to 1.2mlbs per annum. Alligator is Buy-rated with a 11c target price.

Aura Energy (also Buy) has its Tiris project permitted for development and mining. The final investment decision is expected in March 2025. The resource was upgraded to 91mlbs from 55mlbs in June. Target price 45c.

Petra observes the likely 2025 guidance for Kazatomprom which is expected at the 1H2024 results on August 23 could be a market moving event because of ongoing sulphuric acid supply problems.

Citi had Paladin Energy ((PDN)) in focus this week as the broker updated its model on the back of a 15%-20% increase in the expected operating costs for Langer Heinrich.

Although the target price is revised to $15.20 from $16 to account for the change in the long-term valuation, at current levels Citi believes the shares offer good value.

Short term, Citi suggests the market’s assessment of the Kazatomprom 2024 guidance update is too positive and thus negative for share prices, like Paladin’s.

Uranium companies listed on the ASX:

ASX CODE	DATE	LAST PRICE	WEEKLY % MOVE	52WK HIGH	52WK LOW	P/E	CONSENSUS TARGET	UPSIDE/DOWNSIDE
1AE	09/08/2024	0.0600	0.00%	$0.19	$0.06
AEE	09/08/2024	0.1300	0.00%	$0.36	$0.12
AGE	09/08/2024	0.0370	5.71%	$0.08	$0.03
AKN	09/08/2024	0.0100	0.00%	$0.07	$0.01
ASN	09/08/2024	0.1000	5.43%	$0.20	$0.07
BKY	09/08/2024	0.3000	4.92%	$0.46	$0.26
BMN	09/08/2024	2.4400	4.76%	$4.87	$1.65		$7.400	203.3%
BOE	09/08/2024	2.9300	0.00%	$6.12	$2.87	30.3	$5.013	71.1%
BSN	09/08/2024	0.0400	-20.00%	$0.21	$0.04
C29	09/08/2024	0.0900	0.00%	$0.12	$0.06
CXO	09/08/2024	0.0900	5.49%	$0.57	$0.08		$0.093	3.7%
CXU	09/08/2024	0.0200	0.00%	$0.06	$0.01
DEV	09/08/2024	0.2100	– 4.55%	$0.45	$0.21
DYL	09/08/2024	0.9700	3.17%	$1.83	$0.81	-67.9	$1.770	82.5%
EL8	09/08/2024	0.3000	11.32%	$0.68	$0.26
ERA	09/08/2024	0.0200	6.67%	$0.08	$0.01
GLA	09/08/2024	0.0100	-50.00%	$0.04	$0.01
GTR	09/08/2024	0.0040	0.00%	$0.02	$0.00
GUE	09/08/2024	0.0500	-16.67%	$0.18	$0.05
HAR	09/08/2024	0.0600	0.00%	$0.28	$0.06
I88	09/08/2024	0.6300	– 1.69%	$1.03	$0.14
KOB	09/08/2024	0.1100	-15.38%	$0.17	$0.06
LAM	09/08/2024	0.5600	– 8.94%	$1.04	$0.48
LOT	09/08/2024	0.2300	0.00%	$0.49	$0.20		$0.685	197.8%
MEU	09/08/2024	0.0390	0.00%	$0.06	$0.03
NXG	09/08/2024	8.6500	– 0.12%	$13.66	$7.32		$16.200	87.3%
ORP	09/08/2024	0.0600	-16.67%	$0.12	$0.05
PDN	09/08/2024	10.1200	4.67%	$17.98	$7.25	-78.7	$16.088	59.0%
PEN	09/08/2024	0.0900	7.41%	$0.15	$0.08	30.0	$0.260	188.9%
PNX	09/08/2024	0.0040	0.00%	$0.01	$0.00
SLX	09/08/2024	4.2500	0.00%	$6.74	$2.92		$7.600	78.8%
TOE	09/08/2024	0.2700	3.85%	$0.70	$0.01
WCN	09/08/2024	0.0170	6.25%	$0.02	$0.01

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms