Uranium production cuts have sent Aussie small caps on a run
ASX small cap uranium players made strong gains on Thursday after Canadian uranium heavyweight Cameco indefinitely suspended production at one of its mines.
Cameco is mothballing production at its McArthur River mine, which was the world’s biggest mine producing more than 8 million kg of uranium.
One Canadian uranium explorer said the move would remove 11 per cent of global supply from the market (see below).
That prompted gains of between 2 and 39 per cent for 20 of the 60 or so ASX-listed companies with exposure to uranium.
Leading the charge was Manhattan Corp (ASX:MHC), which spiked as much as 38.5 per cent to an intra-day high of 3.6c before cooling to 3c.
Manhattan is trying to advance its Ponton uranium project in Western Australia.
However, the company isn’t confident of progressing exploration and development over the four-year term of the WA State government given its policy of not approving new uranium mines or allowing exploration in A Class reserves.
Bannerman Resources (ASX:BMN), which is developing its Etango uranium project in Namibia, climbed nearly 17 per cent to 6.2c before edging back to close at 5.9c.
Vimy Resources (ASX:VMY) jumped 15.8 per cent to 11c, while Peninsula Energy (ASX:PEN) added 12.5 per cent to hit a daily peak of 31.5c.
Vimy is advancing its WA “Mulga Rock” uranium project towards production, while Peninsula is already in production in Wyoming in the US.
Boss Resources (ASX:BOE) gained 9.4 per cent to reach 7c, Deep Yellow (ASX:DYL) rose 7.7 per cent to 42c and Toro Energy (ASX:TOE) shifted up 4 per cent to 2.6c.
A big strain on the uranium market
Cameco will still need to source material from the market to fill contracted sales positions, which will put an even bigger strain on a market that is already in deficit.
“An estimated 25 to 30 per cent of global supply has been removed from the market since 2016 – that is unparalleled in terms of quantum compared to any other commodity in their worst corrections,” said Travis McPherson, vice president corporate development for Vancouver-based NexGen Energy.
“Again, the significance of this action taken in terms of its beneficial impact on the supply-demand fundamentals cannot be overstated.”
The uranium price bombed heavily in 2011 from the roughly $US70 per pound it was trading at after the Fukushima Daiichi nuclear disaster that forced Japan to shut down its entire reactor fleet.
It is now trading around $US24 per pound – a long way off the trigger price needed for new mines to come into production.
Vimy told investors yesterday market recovery is dependent on a fine balance between demand and supply.
While demand is growing, albeit slowly, supply has been out of balance for several years and actions such as these will lead to a structural supply-side deficit, according to Vimy.
“I know Tim Gitzel, CEO at Cameco, very well and this would have been a very hard decision for him personally,” Vimy boss Mike Young said.
“They say the darkest hour is just before the dawn, and I know this action will catalyse a more sustainable uranium market.”