Guy on Rocks: Uranium — glowing in the dark
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‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
Gold was up US$18 at one-point before settling at US$1,828/ounce for the week after abysmal non-farm payrolls that came in at 235,000 (consensus 720,000).
Data for July and August however was revised upwards slightly while US unemployment fell from 5.4% (July) to 5.25% (August).
Wage inflation was up 0.60% in August from 0.40% recorded in July.
I wonder what Uncle Jerome is going to do now? Let me guess, print more greenbacks…? Other economic data out last week was also somewhat tepid with the Institute for Supply Management (ISM) non-manufacturing index returning 61.7% (consensus 61.9%) for August, down from 64.1% in July.
All bullish news for gold bugs in the near term.
The general mood towards commodities however appears to be improving (figure 1) after a northern hemisphere sell-off over 1H 2021. Precious metals (worst performing sector this year) outflows totalled US$10.8 billion (Citi Research, Commodity Flows, 30/8/2021) over CY 2021 (figure 2).
Amid the declining GDP outlook in China (or alternatively China wanting to cool the market?) China’s State Reserve Board (SRB) is proposing another third round of strategic reserve sales, including 70kt aluminium, 50kt zinc and 30kt copper in an attempt to curb rising metal prices.
The big mover during the week was uranium which finished at US$37.20/lb (figure 3) with Sprott claiming some of the credit based on the establishment of their uranium trust in July of this year.
One RBC Dominion Securities analyst claimed that “renewed financial interest to invest in physical uranium, aided by the Sprott uranium trust, has recently pushed spot prices higher and is an x factor in our price forecast.”
This gave many of the producers and explorers a lift with Cameco up 18% for the week (and 60% this year) to $21.39 a share.
Australian explorers and developers also got a big lift. The Sprott Physical Uranium Trust invests and holds most of its assets in uranium (U3O8) and aims to create a “liquid and convenient way to own physical uranium,” according to Sprott.
Another commodity making the news this week is hard coking coal which surprisingly moved in the opposite direction to iron ore, which is now off US$63/t (30%) from its mid-July peak.
Australia’s fob price stands at a >3-year high of US$248/t, with the landed China price continuing to set new all-time highs, currently at $421/t and up $112/t (+36%) since mid-July (figure 4).
China’s crude steel production has slowed significantly this year (-8%mom; -7%yoy) with blast furnace hot metal output also down (-4%mom;-7%yoy), which softened iron ore demand in July.
China’s coke production however remained unchanged (0%mom; -3%yoy). However, China’s coke output (+4%yoy in 1H21) lagged increasing steel production (+11%yoy).
Current domestic met coal shortages have been exacerbated by the ongoing import ban of Australian coal and suspended Mongolian imports. Coke inventories at Chinese steel mills are almost at a four-year low.
Yet another coup in West Africa, with Colonel Doumbouya claiming that he was seizing power due to the “financial mismanagement and corruption in Guinea under President Alpha Conde”.
Apparently he is not happy with the roads or the hospitals. As the French didn’t leave so much as a spare tyre behind when they pulled out in 1960 I am not surprised. Doesn’t look like any iron ore is due to move from the giant Simandou deposit any time soon…
It appears that digging up and selling iron ore can be a complex business. CZR Resources (ASX:CZR) (figure 5) saw its chairman David Flanagan, together with three other directors, namely managing director Dr Rob Ramsay and non-executive directors Anna Neuling, Simon Jackson, due to leave the building (effective 10 September 2021) after an alleged disagreement with major shareholder Mark Creasy regarding the development of the Robe Mesa iron ore project (near Pannawonica).
I assume the 11th of September was out of the question for obvious reasons.
My advice to the new board is to dig the dirt up as cheaply as possible, sell it for the highest price possible and always keep a bottle of 2010 Hill of Grace close by in the event of disagreement with the major shareholder.
Anyway, might be a trading opportunity here…
Bellevue Gold (ASX:BGL) (figure 6) was knocked over in the rush for its $106 million placement at 85 cents as part of its $252 million Bellevue Gold Mine development.
A $200 million facility from Macquarie and $25 million from a share purchase plan will round off the funding. Might have to re-read my honours thesis on this…it may be none of the later operators followed any of my exploration recommendations…
Boab Metals (ASX:BML) (figure 7) has received encouraging intersections from 59 holes as part of its Phase V drilling program at the Sorby Hills Lead-Silver-Zinc Project (BML: 75%, figure 8) situated in the Kimberley (Western Australia). Drilling confirmed the presence of potentially economic Stratabound mineralisation including (figure 9, 10).
RC drilling has commenced with a view to outlining a JORC Resource at the Beta Deposit and expanding the production profile of the existing Definitive Feasibility Study.
Fossil fuels have hardly been the flavour of the month in recent years however you can’t ignore the tear-away coking coal price. Cokal (ASX:CKA) has a portfolio of metallurgical coal prospects in Kalimantan (Indonesia) including:
The projects are all located adjacent to Indomet’s extensive coking coal tenements and CKA is looking to bring the BBM project (figure 12) online first. According to the company the project contains multiple seams of high-quality metallurgical coal.
The updated 2016 DFS for BBM contemplated a 10-year, 2Mtpa operation with a CAPEX of around $70 million and a life of mine cash cost of US$82/tonne.
Coking coal prices have risen from lows around US$50 to US$179/tonne which could generate margins in excess of between US$75-85/tonne assuming costs haven’t risen significantly.
I haven’t been a big fan of Indonesia (I am a big fan of the St Regis Hotel in Bali however) as a mining jurisdiction however CKA does have the tailwinds of a surgical metallurgical coal price behind it together with key regulatory approvals in place. So while the stock has moved to a market capitalisation of around $170 million, there may be further upside around the corner…
Finally, don’t forget our portfolio of ASX listed uranium explorers and developers — Boss Energy (ASX: BOE), Bannerman Resources (ASX:BMN), Paladin Energy (ASX:PDN), Vimy Resources (ASX:VMY), Alligator Energy (ASX:AGE), Peninsula Energy (ASX:PEN) …and there are a few more) which were highlighted in our “Judgement Day” Guy on Rocks publication on 25th May 2021.
Just so you are all in the loop, the Stockhead fun police censored me last week for being politically incorrect (first time for everything) so I have been placed on four weeks probation. My prospects look dim…
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.
He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States. The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.