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Uranium Week: The Nuclear Option

Weekly Reports | Mar 08 2022

This story features PALADIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: PDN

Russia’s invasion has served to push up uranium prices on the basis of nuclear being a power alternative to Russian oil and gas. But the attack on an Ukrainian nuclear plant has sent a shudder.

-U3O8 spot price continues to rise
-Nuclear sentiment hits share prices
-Toro Energy’s permit lapses

By Greg Peel

The two Australian-listed uranium miners closest to resuming actual production are Paladin Energy ((PDN)) and Boss Energy ((BOE)).

Paladin’s Langer Heinrich mine in Namibia boasts one of the world’s largest uranium deposits while Boss Energy’s Honeymoon mine was once one of only three uranium mining operations permitted by the Australian government. Both were closed down in the wake of Fukushima, as uranium prices plunged.

Paladin was saved from near bankruptcy when the Chinese took a stake. Boss acquired Honeymoon from Uranium One when it was still in care & maintenance. While both mines are yet to restart, the share prices of both miners have enjoyed pre-emptive rallies on the uranium price recovery.

But things turned a little sour last week.

When Russia invaded Ukraine Paladin’s share price began a 36% rally while Boss Energy's rose 49%, driven by assumed Russian energy export constraints, and a a greater focus on the nuclear power alternative. Russia exports uranium ore as well as oil and gas, but, more importantly, accounts for around a third of the world’s enriched uranium exports.

Last week Russia attacked and secured Ukraine’s Zaporizhzhia Nuclear Power Plant – the largest plant in Europe. Paladin’s and Boss Energy’s share prices have since fallen -19%.

Last week industry consultant TradeTech’s weekly spot uranium price indicator rose US$3.25 to US$50.25/lb.

Therein lies the nuclear dilemma.

Sentimental History

Cameco’s share price fell -10% in response to Zaporizhzhia, but has since recovered. The world’s largest producer of uranium outside Kazakhstan is set to recommence production.

Nuclear power as an energy alternative has had a history of setbacks, from Three Mile Island in 1979, to Chernobyl in 1986, and Fukushima in 2011. The knee-jerk selling of uranium miners last week was yet another example of the world’s uncomfortable relationship with anything nuclear.

In the wake of Fukushima, the then German government declared it would decommission its aged reactors and not build any new ones. Following the invasion, today’s government is looking to extend the lives of existing plants.

France has doubled-down on its intention to build six new reactors in the next ten years.

Fukushima’s impact went close to shutting down the global uranium market for good. The plunge in price, largely due to shut-down Japanese reactors, made mining uncommercial, and reactor fleets in the US and Europe were nearing their used-by dates anyway. Only China remained keen on the alternative power source.

Before Putin made his move, covid-driven constraints had pushed the prices of oil, and particularly European natural gas, to historical highs. Since the invasion, those prices have hit “shock” territory.

Covid had helped prompt an EU decision that nuclear energy was a sufficiently “green” fuel to support the transition period to base-load renewable energy. Speculators have hit the spot uranium market big-time. The invasion has only steeled their resolve, ignoring the implicit threat of a madman in control of a nuclear plant and a nuclear button.

Sharp Climb

The spot uranium market stalled in January following a Fed policy shift that sent financial markets into turmoil. It remained quiet into February as the Sprott Physical Uranium Trust sat as almost the only buyer. On the invasion, the spot price took off.

The month of February saw 5.3mlbs U3O8 equivalent change hands at spot. TradeTech’s spot price indicator rose to US$49.00/lb at end-February from US$43.15/lb at end-January, and last week continued on to US$50.25/lb.

At end-February the spot price was 40% above its 2021 average. The SPUT acquired around half the material in the month.

Last week the spot price was up 83% year on year, including 16% over two weeks.

Outside of speculators, utilities are also trying to shore up their longer term uranium supplies. But if covid-driven supply/transport issues weren’t enough, now Russia has thrown an extra spanner into the works.

While direct sanctions are yet to be imposed on Russian energy exports, utilities are having to navigate a number of hurdles, TradeTech reports, including transportation and banking policies, in order to ensure that material scheduled for delivery arrives safely and in a timely fashion. Based on the latest news from Ukraine, logistical issues are expected to increase in both frequency and difficulty.

TradeTech’s monthly mid-term price indicator has risen at end-February to US$47.00/lb from US$44.50/lb, while the consultant’s long-term price indicator remains unchanged at US$45.25. The uranium term curve is now officially in backwardation.

Most notably, both the spot and mid-term indicators have now risen above TradeTech’s estimated average cost of production of US$46.10/lb.

That’s been over a decade in the making.

Aussie Battlers

While Australia’s Paladin Energy and Boss Energy are in the global spotlight, the news is not so good for Western Australia’s mining hopefuls. The current state government banned uranium mining in the state when it came to office, other than four projects that had already been underway.

Australian-listed Toro Energy’s ((TOE)) Wiluna project and Cameco’s Kintyre and Yeelirrie projects in WA have failed to reach required construction milestones, stockbroker Bell Potter reports, resulting in a lapse of environmental approval. That leaves only Vimy Resources’ ((VMY)) Mulga Rock project with valid permits to continue development.

Toro’s investors have nevertheless not given up hope. The share price went on the same ride as Paladin and Boss the past couple of weeks, and is still above where it was before the invasion.

Vimy’s share price has nonetheless doubled since that time.

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