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Uranium Week: Uranium Price Drivers

Weekly Reports | Mar 23 2021

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A jump in the weekly spot price focuses the minds of uranium participants on both short and medium-term price catalysts.

-Increasing short-term transaction volumes
-Bullish 12 month view
-Spot uranium rises over 8% to $US29.65/lb

By Mark Woodruff

The weekly spot uranium price showed renewed volatility this week, spiking 8% to US$29.65/lb.

Industry consultant TradeTech cites increased transaction volumes driven primarily by producer and investor activity as one catalyst for the short-term rise. When combined with cuts and reductions to primary production, there is potential for considerable influence on the uranium market.

Investor interest from funds has undergone a recent resurgence with Uranium Participation Corp (UEC) and Yellow Cake plc acting as first movers to take physical positions in the uranium market, by sequestering uranium concentrates. This may be termed a “buy and hold” strategy.

In addition, select emerging producers have supplemented this strategy with a “buy and deliver” revenue model, notes TradeTech. By way of example, Canadian-listed uranium explorer and developer Denison Mines Corp announced a deal to raise approximately US$75 million to fund the strategic purchase of physical uranium concentrates to be held by the company as a long-term investment.

In turn, this could support the potential development of Denison's 90% owned Wheeler River Project. Planned spot uranium purchases made by Denison are targeting the accumulation of approximately 2.5 million pounds U3O8.

When taken together, purchases by Denison, UEC, and Yellow Cake in 2021 total 7.8m lbs in a spot market that had seen approximately 15.7m lbs transacted to date this year, calculates TradeTech.

In relation to the medium term, investment banking and financial services company Canaccord Genuity recently held a global uranium market panel discussion that painted a very bullish outlook for the uranium market.

Discussion centred on a number of catalysts for rising prices over the next 12 months. 

A structural shift to emerging nuclear power growth in Eastern Europe and Asia from a North America and Western Europe-centric past was highlighted. Of particular note is China’s commitment to carbon neutrality by 2060 and an aggressive build-out of its reactor fleet to 70Gwe by 2025 as part of its 14th Five Year Plan.

Also detailed were the difficulties faced by European countries, such as Germany and France, in reducing nuclear penetration, and signs of a more supportive stance on nuclear from the Biden administration, along with a shift to bipartisan support.

As a result of climate change being at the forefront of government policy, Canaccord Genuity considers sentiment toward the uranium market has improved dramatically over the last 12 months.

The  significant challenges faced by producers is clear with marginal costs well above current spot prices and an absence of long-term contracts at the prices required for economic production. Future supply is considered to look fragile with mines shutting down due to depletion and a lack of investment in new primary mine supply.

The presence of long-term contracts has masked the discord between spot prices and production costs, according to the panelists. However, this is expected to change as utilities re-enter the market in 2021 to re-contract. 

With significant supply having already been removed from the market and a slow ability to respond by producers, a tighter environment than over the last decade is expected to arise.

As to why the price should start appreciating soon, it was felt utilities had reached a point where they had no choice but to again recommence large scale contracting.

Company News

The world’s largest producer and seller of natural uranium, Kazatomprom, released financial results on March16, reporting annual production of 50.6m lbs for 2020, which was -15% lower than 2019 output, due to second quarter actions to protect employees during the pandemic.

Production guidance for 2021 is 58.5-59.3m lbs. The company also noted it may purchase material in the spot market after investor Yellow Cake plc exercised an option to purchase uranium.

ASX-listed Paladin Energy ((PDN)) last week announced a $218.7 capital raise. At the time of writing $192.5m had been successfully completed via an institutional placement and the institutional component of the entitlement offer. The balance of funds will be raised (also at $0.37) via a fully underwritten retail entitlement offer which opens on March 24.

The reset of capital structure delivers optionality on future funding structures to restart the Langer Heinrich uranium mine at an estimated cost of US81m, with prudent debt levels.  

Uranium pricing

TradeTech's Weekly Spot Price Indicator is US29.65/lb an increase of US$2.25/lb from last week's value.

The weekly spot uranium price had exhibited limited volatility recently, steadily declining to US$27.40 from US$30.40/lb over the last ten weeks. However, this week the price showed renewed volatility, rising 8.2% on increased transaction volumes driven primarily by producer and investor activity. 

The weekly spot uranium price is nearly 24% higher than a year ago and is down nearly -2.5% in 2021. The average weekly uranium spot price in 2021 is US$29.16/lb, US$0.55 below the 2020 average.

A total of approximately 3.2m lbs U3O8 was purchased during the week. 

TradeTech's term price indicators are US$31.25/lb (mid) and US$35/lb (long). 

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