Uranium Week: Short Term Volatility

This story features DEEP YELLOW LIMITED. For more info SHARE ANALYSIS: DYL

Financial market volatility continues to impact on the spot uranium market but longer term demand continues to build.

-U3O8 spot market dragged down once more
-Utilities continue to target longer term supply
-Buy rating for Australian-listed Deep Yellow

By Greg Peel

Encouraging uranium demand news from Asia was reported last week, industry consultant TradeTech reports, as Japan's Nuclear Regulation Agency said a rule limiting the operating lives of nuclear power plants to a maximum of 60 years is expected to be removed from the country's regulations.

The potential change is in line with Prime Minister Fumio Kishida's goal of extending reactor lifespan to reduce carbon emissions and provide stable electricity supply.

Meanwhile in France, the Macron government has started the process to fully nationalize utility Electricite de France as it tries to gain greater control of its energy supplies, with Europe moving to replace Russian natural gas.

In light of an urgency from utilities to secure supply from other sources than Russia, and out to longer time periods, the uranium term market remains buoyant, particularly in the five to ten year supply window.

The uranium spot market on the other hand remains beholden to overall financial market sentiment, and current volatility has led to low liquidity. Last week started well as global stock and bond markets rebounded on the Bank of England’s intervention into the UK bond market, but sentiment flipped once again on Friday’s US jobs report.

TradeTech’s weekly spot price indicator closed the week down -US50c at US$47.75/lb.

TradeTech’s term price indicators remain at US$50.50lb (mid) and US$53.00/lb (long), with a positive price curve reflecting volatility at the short end and longer-dated demand in term markets.

Deep Yellow

In 2017, a change of government in the state of Western Australia led to a reintroduction of a prior ban on uranium mining. However, four already advanced projects in the state were awarded an exemption. One of those was the Mulga Rock project, owned by Vimy Resources.

Recently, Vimy merged with another Australian-listed uranium developer, Deep Yellow ((DYL)). The merged entity now boasts two advanced projects in Mulga Rock and Deep Yellow’s Tumas project in Namibia. Stockbroker Bell Potter has today initiated coverage of Deep Yellow with a Buy rating and $1.05 price target.

Deep Yellow has a Mineral Resource Estimate of 392mlbs U3O8, and an Ore Reserve of 110mlbs. With Tumas progressing towards a definitive feasibility study (DFS) by the end of 2022 and Mulga Rock commencing a revised DFS, Deep Yellow looks to become a globally diversified, multi-asset producer by the middle of the decade, Bell Potter suggests.

The broker estimates the current annual shortfall in U3O8 supply at around -37mlbs, expanding to around -56mlbs by the end of the decade, based on current reactor requirements (160mlbs pa) and restarted operations returning to production.

The global fleet of nuclear reactors will require fresh U3O8 supply, irrespective of an expansion in reactor capacity, which will require long-term prices to lift to between US$60-70/lb over the coming years on the broker’s estimate.

With the International Energy Agency estimating nuclear capacity at 800GW by 2050 to meet net-zero ambitions, the additional annual supply required jumps by some 200mlbs, Bell Potter notes, further exacerbating market tightness and forcing fuel buyers to sharpen their pencils to access supply.

Uranium mining remains a contentious issue in Australia. Of six states and two territories, the governments of South Australia and the Northern Territory are the only ones not to ban uranium mining, and the federal government applies a limit to the number of mines. Also a contentious issue is nuclear power.

Despite Australia boasting some of the world’s largest uranium reserves, and the recent global energy crisis extending to Australia, no government has even been game to allow the development of a nuclear power industry.

Only last week, nine federal senators supported legislation to remove the nation's nuclear energy ban by introducing a Private Senators Bill and arguing nuclear power is one of the safest forms of energy, and will play a vital role in achieving the nation's emission targets (-43% emissions reductions below 2005 levels by 2030).

But in response to the proposed bill, the federal energy minister said nuclear is the most expensive form of power Australia could invest in today.

Either way, support for nuclear power has long been considered political suicide in Australia, due to both public fear (see: Three Mile Island, Chernobyl, Fukushima, Zaporizhzhia) and fierce lobbying from Australia’s extensive coal industry.

Uranium companies listed on the ASX:

ASX CODE	DATE	LAST PRICE	WEEKLY % MOVE	52WK HIGH	52WK LOW	P/E	CONSENSUS TARGET	UPSIDE/DOWNSIDE
BKY	11/10/2022	0.2600	– 3.70%	$0.64	$0.14
BMN	11/10/2022	1.9200	– 4.00%	$2.49	$0.15
BOE	11/10/2022	2.5400	– 4.87%	$3.10	$0.27		$3.300	29.9%
DYL	11/10/2022	0.7800	– 8.24%	$1.25	$0.55
ERA	11/10/2022	0.2000	– 4.76%	$0.45	$0.16
LOT	11/10/2022	0.2100	-12.50%	$0.46	$0.19
PDN	11/10/2022	0.7800	– 2.50%	$1.03	$0.53	-135.0	$1.100	41.0%
PEN	11/10/2022	0.1600	– 5.88%	$0.31	$0.14
SLX	11/10/2022	2.7300	– 7.77%	$4.14	$0.99

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