Barry FitzGerald: Confidence is brewing, is the uranium renaissance upon us?
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Other than the gold and iron ore space, things are pretty glum in the broader mining market thanks to the pressure on commodity prices caused by the threat to global economic growth from the coronavirus.
Among all the gloom and doom though, spare a thought for the decimated uranium sector which continues to wait for its long promised demand and price recovery.
The current widespread equity market volatility to the downside is nothing new to the uranium sector. It is a kind of do-your-worst feeling.
But while the (spot) uranium price continues to struggle at less than $US25/lb ($38/lb), it has to be said confidence is brewing that the long promised uranium renaissance is upon us, with the nuclear fuel’s role in combating the world’s climate change “crisis’’ now embedded into its upside story.
Tim Gitzel, president and CEO of Canadian uranium giant Cameco, was as upbeat as a uranium producer could be at the recent heavyweight BMO metals and mining conference in Florida.
“Demand is in an upswing, with (electricity) utilities having a growing wedge of uncovered requirements, precisely at the same time that supply is on the downswing. Today’s prices are only exacerbating this trend,’’ Gitzel said.
“Some people have lost sight of the long-term fundamentals of the industry because they get caught up in the short-term noise that is going on.’’
Gitzel said that there was a “growing recognition around the world that nuclear power will be an indispensable tool for addressing what is now being referred to as the climate change crisis’’.
“Today’s low price for uranium is creating tomorrow’s opportunity for us.’’
Gitzel said Cameco’s biggest and best customers had a good sense of the security of supply issues around uranium, and understood that today’s prices did not reflect the industry’s production economics.
True believers in the uranium renaissance have also been served up another source of optimism in a 45-page uranium report by the Canadian and Australian research desk of Canaccord Genuity.
It noted that the fallout from Fukushima had seen the number of listed uranium companies on the Australian and Canadian stock markets plunge from 585 in 2011 (prices for uranium peaked a few years earlier at $US135/lb) to about 50. Think of them as the hardy survivors.
Canaccord also reckons that utilities are now starting to sign up for long-term supply contracts.
“We estimate 60 per cent of current long-term contracts will need to be renegotiated by 2023,” Canaccord said.
“In our view, long-term contracts are likely to be struck at a premium to the current base indicator (for contracts of $US35/lb) in order to supply certainty to utilities, given the negligible effect that the uranium price has on operating cost bases.’’
Cannacord is forecasting the uranium spot price to be range-bound between $US25/lb and $US30/lb over the near term.
But with the current disincentive pricing, supply will struggle to keep pace with growing reactor demand. “In this scenario, we project a market deficit as early as 2023,’’ Canaccord said.
As a result, it has the spot price climbing to $32/lb in 2021 and $US50/lb by 2025. It is at $US50/lb (contract prices would be higher) that uranium companies and investors alike will get their mojo back.
Canaccord keeps a uranium equities watchlist. There are four ASX-listed companies on the list but only one of them – Vimy Resources (ASX:VMY) – comes with a target price at this stage.
Vimy Resources is trading at 3.8c for a market cap of $24m. Canaccord has a 30c price target on the stock on the strength of its Mulga Rock project in Western Australia, which it says is a large, long-life asset in a favourable jurisdiction.
Boss Resources (ASX:BOE) owns the shovel-ready and low-cost Honeymoon project in South Australia and is now looking to secure offtake agreements. Last sale was 4.5c for a market cap of $71m.
Paladin Energy (ASX:PDN) was a producer previously and a study last year pointed to a $US80m restart plan for the Langer Heinrich operation, with costs below $US33/lb to be confirmed over 2020. Last sale was 7.8c for a market cap of $158m.
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