Monsters of Rock: The Lord taketh away from uranium baggies as Cameco growth plans smash ASX stocks

The lord gives with one hand and takes with the next, a karmic lesson on the circular nature of fortune and misfortune that uranium bag holders will be feeling with distinct sobriety today.

Kazatomprom’s news it would face supply challenges had yellowcake spruikers howling last week …

Only for its western challenger Cameco to make big noise overnight about plans to dramatically ramp up production ‘when the time is right’.

Production volumes from the Canadian major’s operations lifted 69% in 2023 to 17.6Mlb, with sales volumes up 25% to 32Mlb.

Average realised prices lifted 11% to US$49.76/lb and 22% YoY to US$52.35/lb in the December quarter as spot prices started to surge higher — noting that uranium is largely sold on long term contracts to utilities.

That saw Cameco nearly quadruple net earnings for 2023 to C$$361m, up from C$89m in 2022.

But the brighter demand outlook for uranium that sent spot prices to 16 year highs of US$107/lb in recent days has also seen Cameco ramp up its production plans, dulling enthusiasm for Aussie miners as investors digest the potential established players could fill emerging supply gaps.

Cameco expects to lift production strongly again in 2024 to 22.4Mlb and is reviewing the potential to expand its flagship McArthur River/Key Lake operation from 18Mlb (100% basis) to 25Mlb, the limit of its approved capacity.

Located in Saskatchewan’s vaunted Athabasca Basin, McArthur River is the largest high grade uranium mine in operation globally.

ASX players were savaged on the news, with Boss Energy (ASX:BOE) down 12.69% and Paladin Energy (ASX:PDN) off 7.02%.

Deep Yellow (ASX:DYL) lost a tenth of its value, with Lotus Resources (ASX:LOT) 5.56% in the red and Peninsula Energy (ASX:PEN) down 6.9%.

Is it all that bad?

While Cameco’s plans certainly look imposing for new producers hoping to ride a yellow wave on the promise the energy transition will radically increase demand for nuclear power, they came with temperate language from boss Tim Gitzel overnight.

He said the world is in the ‘early innings’ of a security of supply contracting cycle — conditions conducive to contracts written at higher prices.

“Volumes are going up, not just because more years are being added, but because utilities are taking a bigger bite out of each of their requirements contracts,” he said.

“And then, of course, time frames are going out. There are utilities who are really well covered for the rest of this decade.

“They’re now worried about the next decade and they’re starting to look to contract into that window as well.

“So all of that very constructive for a view that the long term demand is building, not peaking, but building. And that what we want to remain is very disciplined to capture as much of that price discovery as we can.”

That word disciplined is a key one for Cameco, which doesn’t want to kill its golden goose with a poorly timed ramp up.

Even with added pounds from the major players, Gitzel says a “very tight market today” will “persist into the next decade.”

“So considering both demand and supply, I think we can safely reiterate that strong long-term fundamentals is still a message that continues to resonate, creating the full cycle growth, we’ve been talking about.

“Looking back at the very difficult supply discipline decisions we had to make and the strategy we put in plac — in the context of that persistent, positive long-term view I can now say it was all to prepare us for today’s market, and for the second half of this decade and beyond.”

While the initial focus is on what Cameco deems as ‘tier 1’ supply, he indicated the coming market shortfalls could support a reanimation of ‘tier 2 assets’ Cameco either has idled or can develop in the future, including specific mention by Gitzel of its stalled Yeelirrie and Kintyre projects in WA for the first time in yonks.