Weekly Reports | Oct 04 2022
As financial market turmoil weighs on the spot uranium market while term market demand remains elevated, the uranium curve has moved into contango.
-General financial market volatility hits spot uranium
-Term demand supported by increased urgency
-Term prices now exceed spot prices
By Greg Peel
The month of September opened on a buoyant note for the spot uranium market on the back of positive policy and nuclear support from a variety of countries. But it didn’t take long for short term global financial volatility to take over.
Industry consultant TradeTech’s spot price indicator traded at US$52.75/lb early in the month but closed the month at US$48.25/lb as fears of a central bank-driven global recession took hold. The indicator fell -US25c for the week to end September.
A total of 2.9mlb U3O8 equivalent were traded during the month in 21 transactions. TradeTech’s spot price indicator fell -US$5.25/lb from end-August.
Purchases of uranium by funds and prospective producers have slowed in recent months, TradeTech notes. The Sprott Physical Uranium Trust, almost solely responsible for a surging spot price into 2022, purchased only 1mlbs in September while having US$17.4m of cash on hand following further investment into the fund.
Although the US energy sector has showed some resistance to broader economic headwinds, and nuclear power has benefitted from recent policy support, the general downturn in the global economy left no sector unscathed in September.
Despite positive policy developments in support of nuclear power, the general downward trend in the financial markets has slowed capital raises for purchases of uranium on the spot market, especially among funds and prospective producers, TradeTech notes.
Share prices of uranium mining companies have been supported in 2022 by a growing focus on nuclear power as an alternative to fossil fuels, and an alternative to Russian energy exports. But uranium miners have not been immune to the general financial market downdraught.
As a case in point, the share price of the Sprott Physical Uranium Trust has spent most of the year trading below the value of the physical uranium the trust holds.
The Great Divide
Financial market-led volatility has kept actual end-users of uranium out of the spot market this year, while the threat of sanctions on Russian uranium exports, and a general desire to shift away from Russian dependence, has led utilities to find more secure supply alternatives and to increase supply for their reactors in the face of uncertainty.
Up until September, the uranium time curve has been in backwardation (short term prices higher than long term prices). Commodities (other than gold) typically trade in backwardation due to the time value of money, but can steepen if short term demand exceeds long term demand.
But now the market is trading in the opposite of backwardation, called contango, suggesting the short-long term demand imbalance is greater than the time value of money.
TradeTech’s spot price indicator stood at US$48.25/lb at the end of September. The consultant has cut its mid-term price indicator to US$50.50/lb from US$52.50/lb at end-August, while retaining a long-term indicator of US$53.00/lb. This reflects the fact utilities are currently looking for secure supply out to longer dates.
Moreover, TradeTech has now increased its estimated average cost of new production to US$56.20/lb from US$52.70/lb at end-August, reflecting the same inflation issues impacting all mining industries. This puts the current spot price well below the level of any production incentivisation.
At a time actual global demand for uranium is rising.
In the term uranium markets, a total of four transactions involving 2.9mlbs U3O8 to be delivered between 2023 and 2027 were reported for September. All four deals were concluded off market. However, on-market purchasing activity is on the rise with several utilities evaluating offers received in response to formal Request for Proposals, TradeTech reports.
Uranium companies listed on the ASX:
| ASX CODE | DATE | LAST PRICE | WEEKLY % MOVE | 52WK HIGH | 52WK LOW | P/E | CONSENSUS TARGET | UPSIDE/DOWNSIDE |
|---|---|---|---|---|---|---|---|---|
| BKY | 03/10/2022 | 0.2700 |  – 3.57% |
$0.64 | $0.14 | |||
| BMN | 03/10/2022 | 1.9800 |  2.70% |
$2.49 | $0.15 | |||
| BOE | 03/10/2022 | 2.6100 | 2.87% |
$3.10 | $0.23 | $3.300 | 26.4% |
|
| ERA | 03/10/2022 | 0.2300 | 4.76% |
$0.45 | $0.16 | |||
| LOT | 03/10/2022 | 0.2300 | 0.00% | $0.46 | $0.19 | |||
| PDN | 03/10/2022 | 0.7800 | 0.00% | $1.03 | $0.53 | -130.1 | $1.100 | 41.0% |
| PEN | 03/10/2022 | 0.1600 | 0.00% | $0.31 | $0.14 | |||
| SLX | 03/10/2022 | 2.7700 | -12.46% |
$4.14 | $0.99 |
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