Uranium price surge: Factors and investment opportunities
Uranium prices have experienced a significant uptick, crossing the $80 per pound threshold, a level not observed in over 15 years. This surge in uranium prices can be attributed to a combination of factors, including a renewed interest in nuclear power and various supply disruptions in the global uranium market.
Nymex futures, which track physical-market contracts for yellowcake, reached $80.25 per pound on a Monday, reflecting a remarkable price increase. Colin Hamilton, Managing Director for Commodities Research at BMO, provided insight into the situation, stating that "Utility contracting continues to pick up," and he noted the limited availability of uncommitted production to meet utility requirements.
Cameco, one of the largest uranium producers in the world, reported on September 4th that challenges at its Cigar Lake mine, Key Lake mill, and McArthur River mine would adversely affect its production forecast. As a result, the company anticipates a 9% reduction in total production from operations, with the output of uranium concentrate (U3O8) expected to be approximately 30.3 million pounds, down from the previous 33 million pounds.
Additionally, the recent political upheaval in Niger, a country responsible for about 5% of the world's uranium production, has disrupted shipments to European nuclear plants, further straining the uranium supply chain.
Concerns have also emerged regarding the reliance on Russia's Rosatom enrichment facilities, particularly in light of the ongoing conflict in Ukraine. This geopolitical uncertainty has prompted nations to diversify their power generation sources, leading some European utilities to prolong the operational lifespans of their nuclear reactors due to disruptions in piped Russian gas supplies.
Year-to-date, physical uranium has witnessed a substantial 55% increase in value, as reported by Sprott Asset Management. Steven Schoffstall, Director of ETF Product Management at Sprott, emphasied the significance of the incentive price of uranium, which currently falls in the range of $75 to $80, allowing producers to maintain profitability.
Schoffstall also pointed to a promising long-term outlook, with a substantial supply-demand gap expected to emerge over the next few decades. Sprott predicts a cumulative shortfall of 1.5 billion pounds in uranium supply by 2040, which is anticipated to drive uranium prices significantly higher in the long run.
Higher uranium prices may incentivise producers to reactivate dormant projects. Notably, this month, Australian miner Boss Energy Ltd. announced the revival of a project that had been shelved for over a decade, reflecting the industry's response to rising demand.
Fund managers are taking notice of the potential in the uranium market. Terra Capital's Matthew Langsford, Segra Capital's Arthur Hyde, and Anaconda Invest's Renaud Saleur are among those positioning themselves in uranium companies.
Langsford, who manages a A$175 million natural resources fund at Terra Capital, anticipates substantial upside potential in uranium equities, potentially reaching 50%, 100%, or more.
Some of the notable companies these funds have started turning there attention to are Energy Fuels, Ur-Energy and NexGen Energy.
There are also some significant players in the Australian landscape.
Paladin Energy (ASX:PDN)
Market Cap: A$3.02B
Paladin Energy is an independent tier one producer and explorer with a 75% interest in the Langer Heinrich Mine in Namibia, which has already produced over 43 million pounds of U3O8 and is set to return to production in Q1 CY2024. Additionally, Paladin maintains a diversified global uranium exploration and development portfolio in Canada and Australia, prioritising value maximisation for its assets while remaining forward-looking and committed to all stakeholders.
Boss Energy (ASX:BOE)
Market Cap: A$1.50B
Boss Energy is focused on restarting the Honeymoon Uranium Project in South Australia, aiming for first production in Q4 2023. The project, fully permitted with existing infrastructure, benefits from South Australia's Tier-1 mining jurisdiction and Boss's substantial uranium resource base, including physical uranium stockpiles, along with an active exploration program, all supported by a dedicated team committed to sustainability and environmentally friendly practices in uranium recovery.
Lotus Resources (ASX:LOT)
Market Cap: A$1.50B
Lotus Resources (ASX: LOT; OTCQB:LTSRF) owns an 85% stake in the Kayelekera Uranium Project in Malawi, Africa, which is currently on care and maintenance but has the potential to quickly resume production with a low capital cost of US$88 million, as indicated in their Re-Start Definitive Feasibility Study released in August 2022, once a Final Investment Decision (FID) is made. Kayelekera has a history of delivering approximately 11 million pounds of uranium before its closure due to a sustained low uranium price.
In regards to the smaller players, Cauldron Energy (ASX:CXU) is making strides in the Australian space.
Cauldron Energy Ltd (ASX:CXU) is a mineral exploration and resource development company with a focus on clean energy transition minerals. They aim to expand their portfolio through M&A and exploration, including projects like the Yanrey Uranium Project, Melrose Project, and sustainable Silica Projects in Western Australia, aligning with a strategy to tap into the growing demand for minerals crucial to the low carbon economy while enhancing shareholder value through responsible decision-making and project development.
Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.