Uranium Week: Not Waiting For Sanctions

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

The spot uranium price leapt to an eleven-year high last week as governments dither on Russian sanctions.

-Sanction imposition slow moving
-Uranium price not hanging around
-Green lights for Paladin Energy

By Greg Peel

While the world has seemingly been quick to place successive sanctions on Russia, the truth is the process itself has been slow.

Last week the The EU parliament passed a resolution to support "an immediate full embargo on Russian imports of oil, coal, nuclear fuel, and gas." The motion is non-binding and does not represent European law. Parliament said the resolution should be accompanied by a plan to ensure the EU's security of energy supply, which highlights the stumbling block.

Germany is still not on board with a ban on Russian gas. EU law requires the agreement of all 27 members. Hungary would prevent unanimity.

As for uranium, Russia supplied 20% of EU imports in 2019-20.

Last week US Congress passed a bill restricting Russia and Belarus of their “normal trade relations” with the US. The bill places a ban on Russian oil imports.

The bills passed by the Senate and House last week represent the first standalone legislation intended to sanction Russia or aid Ukraine that Congress has sent to the President since Russia's invasion of Ukraine began.

Elsewhere in Congress, a committee is now considering bills put forward to ban the import of Russian nuclear fuel. They include a push to add a Strategic Reserve of enriched uranium to the existing reserve of uranium ore, and for the Department of Energy to establish a prioritised enrichment facility.

The DoE facility would be established to bridge the gap to US commercial enrichment being available. Russia is the world's biggest exporter of enriched uranium.

These things take time. The commercial world is not waiting. Already we’ve heard plenty of stories of European companies placing their own bans on Russian imports.

The Scramble

The UK is not as reliant as Germany on Russian energy exports, having North Sea access. Note that “Brent” is named after an oil field off Scotland.

But that has not stopped Boris Johnson pledging to approve eight new UK reactors in eight years, in order to reduce any reliance on imports but also in line with the prime minister’s world-leading net-zero carbon push.

Emmanuel Macron is of a similar mind, announcing a “renaissance” for France’s nuclear industry with a program to build as many as 14 new reactors. He argues it will help end reliance on fossil fuels and make France carbon-neutral by 2050.

He has to get re-elected of course.

But such moves, expedited by the war, only serve to underpin the growing demand-side for uranium. Bans on Russian exports strangle the supply-side.

Price Surge

Which is why uranium consumers and investors are not waiting around to see legislation pass or new reactors built. Last week industry consultant TradeTech’s weekly spot price indicator jumped US$4.25 to US$63.25/lb.

That’s the highest level since March 29, 2011. The Japanese tsunami hit on March 11, 2011.

TradeTech reports 1.2mlbs U3O8 equivalent changing hands last week both formally and off-market.

The spot price is now up 38% in 2022 and 109% year on year.

Paladin Energy

Australian-listed Paladin Energy ((PDN)) now has in place all the necessary permits and licences to restart its 75%-owned Langer Heinrich uranium mine in Namibia. The estimated project execution timeframe has been set at 18 months.

Paladin has recently completed an $215m capital raising and signed its first long term offtake contract with a leading US utility.

The company is in an “exceptionally strong” financial position, suggests stockbroker Shaw & Partners, with more than enough cash to fund the restart and the potential to pay dividends by 2024.

Shaw believes Paladin is the standout in the (Australian) uranium sector on a risk-reward basis. The pathway to Langer Heinrich production is well defined and low-risk, underpinned by a quality resource and detailed technical work.

Note that Langer Heinrich originally began production in 2006, before being put into care & maintenance in 2018 due to too-low uranium prices.

Shaw has a Buy rating on the stock and a $1.30 price target (last trade 85c).

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