Uranium price breaches US$60 a pound as demand outstrips supply

It’s getting harder by the day to ignore the uranium revival as the price breaches the US$60 level with stockpiles shrinking and demand comfortably outstripping supply.

If it was any other commodity the price would almost certainly be a lot higher as would the share prices of the small band of Australian mining companies prepared to go where few have gone in the past 50 years.

Uranium, however, is a special case. Not just because it can be used in massively destructive nuclear weapons but also for its boom/bust history which first seduces investors and then slams the door on them.

Role of history and decarbonisation

History could repeat the bruising sell-offs which followed nuclear accidents at Three Mile Island in the US, Chernobyl in Ukraine and Fukushima in Japan, though this time around there is a new factor offsetting the negatives; decarbonisation.

Limiting emissions of carbon dioxide, the gas wearing most of the blame for climate change, has restored interest (and investment) in nuclear power.

While some Australian politicians and environmental activists are stuck in the past the rest of the world is moving on.

Advantages of nuclear energy

Nuclear, whatever its faults, has reclaimed a role as an important source of low-pollution, base-load power of the sort needed to drive a modern economy – doing what wind and solar can’t do; churn out electricity 24/7 for 365 days a year – for decades.

Global demand for electricity is rising so quickly that power utilities which once proposed to shut reactors are now planning to build more.

This is a shift which has seen them return to the long-term contracting market to compete with investment funds which have been at the forefront of a surge in speculative buying of uranium.

Inventory decline and market competition

The return of the utilities is being driven by a steep fall in their inventories which has seen the stockpile of European power companies fall from around 140 million pounds in 2013 to an estimated 90 million pounds today while US utility inventories are down from 125 million pounds in 2016 to around 101 million pounds.

The fall is a direct result of the power companies burning more fuel than they have been buying with top up time forcing them back into a tightening market where they are being forced to compete with fund buying.

ASX uranium leaders

Locally, the two leaders of the Australian uranium industry are Boss Energy (ASX: BOE) which owns the Honeymoon project in South Australia, and Paladin Energy (ASX: PDN) which owns the Langer Heinrich mine in Namibia.

Both Boss and Paladin are making rapid progress with the redevelopment of their old projects which means they are within sight of making the jump out of the ranks of explorer/developers into the rare category of Australian uranium producer.

Both have also moved well beyond the description of small cap stocks.

Boss, which was trading at less than 10c as recently as three years ago is now selling for around $4.13, a price aided by a one-for-eight share split but which still leaves the company valued at $1.46 billion.

Paladin, a star in the 2007 uranium boom when its shares almost reached $10, before collapsing to 4c in 2020, has been recapitalised and at 94c is valued on the market at $2.8 billion with Bell Potter tipping that the stock will rise to $1.12.

Boss has done better, leaving the brokers in its wake, up 40% over the last month, easily outstripping a price target of $3.72 set by Bell Potter in mid-August when it was trading at $3.33.

Other players in the market

Other stocks in the race to join Paladin and Boss include:

• Peninsula Energy (ASX: PEN), which is pushing ahead with the redevelopment of the Lance project in the northern U.S. State of Wyoming. A sell-off after the loss of a processing contract saw Peninsula’s share price halved from 18c to 9c in mid-July though Shaw and Partners, a stockbroking firm, reckons that a recovery is underway with the stock tipped to rocket back up to 27c.
• 92 Energy (ASX: 92E), which is drilling its Gemini uranium discovery in the rich Athabasca Basin of Canada. High-grade intersections have already been reported with two rigs on site, building interest in the stock which has risen by 25% over the last month to 38c.
• Terra Uranium (ASX: T92) which is also exploring in the Athabasca with a range of exploration tools being used to help construct a 3D model for the next drilling campaign. On the market, Terra has recovered from a late July low of 12c to be trading around 15c.
• DevEx Resources (ASX: DEV), one of the family of companies under the control of Liontown and Chalice chairman Tim Goyder which is exploring one of Australia’s uranium stars of an earlier era, the Nabarlek mine in the Northern Territory. Encouraging drill results encouraged Goyder to top up his 17% stake in the stock with a two million share purchase last month, and
• Elevate Uranium (ASX: EL8) is following Paladin and a number of other Australian uranium stocks to the rich Namibian paleochannels with its Koppies project showing greatest promise. Over the past few weeks the stock has been flying, up 65% to 53c.

Additionally, notable uranium stocks worth watching are Deep Yellow (ASX: DYL), Lotus Resources (ASX: LOT), Alligator Energy (ASX: AGE), and Bannerman Energy (ASX: BMN).

Geopolitical tensions and future risks

While interest has been building in uranium thanks to the decarbonisation theme and a start on building new nuclear power reactors in the U.S. and other countries the spark which ignited the recent price surge was a military coup in the African country of Niger.

One of the world’s major sources of freshly mined uranium, as opposed to stockpiled material and decommissioned nuclear warheads, Niger has become an east versus west flashpoint with Russia’s notorious Wagner private army edging into control as French troops exit.

Niger is the latest country to become a uranium supply challenge with Kazakhstan and its 43% share of the global market seen as a potential problem, along with Russia (5%) of mined material an even bigger risk.

The next events which could encourage investors to discover (or rediscover) uranium include a further deterioration in Niger or a complete breakdown in trade with Russia which would see its uranium removed from the western market.

Locally, the issue which will spark wider interest in uranium will be the start by Boss of production at Honeymoon with a series of milestones approaching with plant commissioning expected to be completed in December with first drums of yellowcake (uranium concentrate) filled early in the new year.

Over the next six months success for Boss and Paladin could spark a wider revival in a largely forgotten sector of the market.