Uranium Week: Mid-Term Price Pullback

Weekly Reports | Jun 07 2022

The uranium spot price continued to bounce last week as the mid-term price fell back and cost pressures are rising.

-U3O8 spot market anticipating SPUT purchases
-Mid-term price adjustment reflects other buyer demands
-Cost of uranium production still steadily rising

By Greg Peel

The bounce in the spot uranium price following general financial market lows continued last week, with industry consultant TradeTech’s weekly spot price indicator rising another US$2.60 to US$47.75/lb.

May ended mid-week, at which point the indicator was at US$48.50/lb, down -US$4.50 from end-April.

The two-week bounce began the week before when global equity and other markets staged a solid comeback rally off the most recent lows, and also on news the Sprott Physical Uranium Trust had successfully issued new capital, and was thus cash-positive.

Given SPUT’s sole purpose in life is to purchase uranium as a financial investment, the market is assuming the trust will soon be in buying more material. As of last week it hadn’t yet, but this has not deterred the speculators.

Term Pressure

I have highlighted in recent reports the extensive contango gap between spot prices trading in the forties per pound compared to TradeTech’s mid-term contract price indicator at US$61.00/lb. Well, that reverted at the end of May. TradeTech has cut its mid-term price to US$51.00/lb.

The move seems contradictory, given the war has only served to engender urgency among end-user utilities to secure inventories amidst the turmoil and uncertainty Russia has created. However, as might often be said in other situations, price isn’t everything. Notes TradeTech:

“Utilities recognize that prices must be higher to encourage new supply to come forward, but their focus clearly is targeted at remaining competitive in the future energy landscape. As a result, utilities are vetting any potential supplier to ensure that they will be able to meet future commitments.

“This involves an evaluation based not only on price, but on the evaluated price that includes factors that weigh past delivery performance, jurisdictional risk, ESG compliance, and their ability to deliver material on time, along with terms and conditions related to escalation and quantity flexibility.”

Four transactions were concluded in the term market in May involving more than 11mlbs U3O8 equivalent for delivery over a variety of years, TradeTech reports, from 2023 to beyond 2030. In addition, a number of utilities continue to pursue other means to hedge their portfolios against potential supply interruption of deliveries from Russia, including exercising options and upward quantity flexibility.

While nuclear-related exports are yet to be included in any sanctions placed on Russia, most of Russia’s former customers are acting as if this were already the case by turning to other sources, while still forced to make good on pre-war contracts.

TradeTech’s long-term price indicator remains at US$52.00/lb.

Cost Pressures

As of last week, all three of TradeTech’s price indicators sit below the consultant’s production cost indicator, which climbed to US$52.40/lb in May from $52.00/lb in April, marking a 12-month run of either flat or consecutive increases to the indicator without decline.

This "cost creep" means the end-May PCI represents the highest value since the indicator's inception in April 2020, and 23% (US$9.70) higher than last year's equivalent at US$42.70/lb in May 2021.

The monthly increase in the PCI, which captures TradeTech's proprietary judgment of the life-of-mine full cost (C3) necessary to incentivise and support new primary uranium production, captures a combination of circumstances affecting the future supply/demand dynamic.

As for why costs are rising, it’s for the same reasons the cost of everything is rising, and transports costs are a fundamental expense.

Uranium companies listed on the ASX:

ASX CODE DATE LAST PRICE WEEKLY % MOVE 52WK HIGH 52WK LOW P/E CONSENSUS TARGET UPSIDE/DOWNSIDE
BKY 06/06/2022 0.3500 – 5.41% $0.64 $0.14
BMN 06/06/2022 0.2200 – 4.35% $0.44 $0.12
BOE 06/06/2022 2.2300 – 7.00% $3.10 $0.14 $3.200 43.5%
ERA 06/06/2022 0.2900 7.14% $0.58 $0.25
PDN 06/06/2022 0.7400 – 6.25% $1.12 $0.41 -78.3 $1.000 35.1%
PEN 06/06/2022 0.1800 5.56% $0.35 $0.12
VMY 06/06/2022 0.2000 – 5.00% $0.33 $0.09

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