Uranium Week: Production On The Move

Weekly Reports | Jul 26 2022

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

In a quiet week in uranium markets, news of Paladin Energy’s production restart provided a highlight.

-No spot transactions
-Producers tendering for supply to US government
-Paladin Energy to restart Langer Heinrich

 By Greg Peel

As is typically the case, the uranium market goes quiet when one of the many industry gatherings each year is underway somewhere in the world. Last week the Nuclear Energy Institute's Nuclear Fuel Supply Forum drew market participants to Washington DC.

And drew all interest out of the spot market.

The news last week that an exemption had been granted to the Canadian shipper waiting to load Russian enriched uranium product in St Petersburg lifted concerns over an imminent delivery disruption, hence buyers are now less motivated to pay up, industry consultant TradeTech reports.

Nor are sellers much motivated to close the gap. The result was a week with no spot transactions completed. TradeTech’s weekly spot price indicator remains unchanged at US$45.75/lb.

Term markets were also quiet, with US producers focused on preparing their responses to the US Department of Energy’s request for proposals for the supply of up to 1mlbs U3O8 for the government’s strategic reserve. The DoE is hoping to spread purchases around.

TradeTech’s term market indicators remain at US$52.00/lb (mid) and US$53.00/lb (long).

All Systems Go

Last week Australian-listed Paladin Energy ((PDN)) formally announced the planned restart of its Langer Heinrich mine in Namibia. It will take another 18 months to get operations to the point of restart, and a further fifteen months to reach full capacity.

Paladin shut down Langer Heinrich six years ago after the uranium price fell below commercial levels. After a couple of years of redevelopment, the decision was confirmed to restart the mine as a result of “strong uranium market fundamentals”.

Following a recent capital raising, the company is fully funded for restart. Capital expenditure guidance has nevertheless increased by 46%, reflecting inflation pressure on supply chain costs, and the bring-forward of key utility infrastructure work packages to ensure the stable and reliable provision of water and power over the 17-year life of the mine.

The announcement by Paladin is a reflection of the many challenges the supply-side will face in meeting future demand expectations on schedule and at prices that will entice utilities to commit to purchases today, TradeTech suggests.

Presently, there are only a limited number of producers that have demonstrated their ability to meet production milestones at prices that are acceptable to utilities. This is especially true for US utilities, which, in the absence of cheap Russian uranium, are seeking secure supply partners able to demonstrate their ability to meet production milestones at prices that allow the utilities to remain competitive. Producers are also suffering from inflation.

After shutting down Langer Heinrich and facing an uncertain future, Paladin engaged with a Chinese joint venture partner with which the company now has a supply commitment, although the China National Nuclear Corp (25%) is yet to finalise its funding or participation decision. Paladin also now has a binding offtake agreement with US utility Duke Energy.

The Brokers

Stockbroker Shaw and Partners believes Paladin Energy will continue to engage with global utilities with the intent of securing uranium term price contracts of sufficient duration and value (north of US$60/lb) as Langer Heirich moves closer to first production. The mine is expected to operate at a cost in the mid-US$30s/lb.

Paladin also owns and operates a large global portfolio of uranium exploration and development assets, underpinned by high-grade resources, in the favourable jurisdictions of Australia and Canada.

Shaw notes Paladin is the premium and most liquid name in the (Australian-listed) sector, and it remains the broker’s preferred exposure to an improving uranium market. Shaw has a Buy (High Risk) rating and $1.30 price target.

Broker Bell Potter agrees, and adds that further upside may come from expansion of the resource base, extending the Langer Heinrich mine life, and/or materially higher uranium pricing. Bell Potter has a Speculative Buy rating and $1.05 target.

Macquarie notes the Langer Heinrich project is fully licensed, in a known uranium jurisdiction and has a near-term path to market buoyed by a positive uranium outlook. Outperform, 80c target.

At the time of writing, Paladin is trading on the ASX at 64c.

Uranium companies listed on the ASX:

BKY 25/07/2022 0.3500 – 2.78% $0.64 $0.14
BMN 25/07/2022 0.1800 0.00% $0.44 $0.12
BOE 25/07/2022 1.9900 – 0.51% $3.10 $0.14 $2.600 30.7%
ERA 25/07/2022 0.2400 9.52% $0.58 $0.16
PDN 25/07/2022 0.6500 0.00% $1.12 $0.42 -64.9 $0.800 23.1%
PEN 25/07/2022 0.1700 6.25% $0.35 $0.12
VMY 25/07/2022 0.2000 5.56% $0.33 $0.09

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