Uranium Week: Near Term Weakness?

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Despite a positive longer term view, Longview Economics sees a nearer term demand/supply balance leading to uranium price weakness.

-Falling demand for uranium meets growing supply?
-More sanctions imposed on Russia
-Spot market quiet

By Greg Peel

Looking ahead, the cyclical outlook for uranium is deteriorating, Longview Economics believes. In particular, demand has recently been boosted by Japan restarting various reactors, but those plants are all expected to be online within the next several months, resulting in a marginal slowdown in demand growth. More importantly, electricity generation tends to fall during recessions.

Given Longview’s expectations for a recession in the US and Europe within the next 6-12 months, the demand outlook for uranium prices is considered relatively poor at this juncture. Likewise, a supply response is coming.

In particular, Cameco is reopening its McArthur River uranium mine (the world’s largest) and it will reach full production by 2024. Elsewhere, Kazatomprom is aiming to increase production by 8-14% by 2024, to the highest level in five years.

In the longer term however, the uranium price outlook remains positive, Longview believes. There’s a dearth of uranium mining projects in the pipeline, given investment into new exploration/supply has been weak for over a decade. And nuclear reactor construction is expected to accelerate within the next 5-10 years, largely driven by China.

Sanctions

Following the first anniversary of the war, the US will impose sanctions on 200 individuals and entities, which include Russians as well as countries supporting Russia’s war efforts. In addition, the US Department of Commerce will take export control actions against several entities, including China, for sanction evasion.

New UK sanctions also designate an additional 92 entities and individuals, including senior executives from Russia's state-owned nuclear company Rosatom. In the EU, sanctions related to nuclear energy have been met with opposition from certain member states, preventing a wider ban on Russian nuclear exports to the bloc. Hungary, for one, is reliant on Russian energy and on new nuclear reactors being built by Russia.

Yet, despite a lack of widespread adoption of formal sanctions on Russian nuclear exports, commercial ties to Rosatom have diminished in the world’s largest nuclear fuel markets due to the country’s aggression in Ukraine, industry consultant TradeTech reports.

On the Spot

Only one on-market transaction was reported in the uranium spot market last week, with the Sprott Physical Uranium Trust buying up another 100,000lbs U3O8. There were also four transactions concluded off-market last week that call for delivery later this year.

Despite Longview’s short term view, TradeTech notes the prices in all four transactions reflect the increasing tightness in excess supplies and expectations of market participants that the uranium price will increase in the coming months.

TradeTech’s weekly spot price indicator has risen US10c to US$51.85/lb.

In the term uranium market, one US utility evaluating offers for delivery of 200,000lbs per annum to be delivered over 2025-2027 has concluded its evaluation and is expected to select a preferred supplier early this week.

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

Paladin Energy

Australian-listed Paladin Energy ((PDN)) continues its progress towards the restart of its Langer Heinrich uranium mine in Namibia. The company reported a loss at its recent result release, reflecting the investment. Restart is expected in the September quarter of 2023.

While the project is currently focused on general repair and refurbishment, in addition to growth, Macquarie highlights Paladin Energy is fully funded to complete the project and has successfully executed four uranium offtake agreements. 

Paladin is a global top pick in the sector for Canaccord Genuity, while Shaw and Partners continues to rate Paladin Energy as the preferred uranium play. 

Uranium companies listed on the ASX:

ASX CODE	DATE	LAST PRICE	WEEKLY % MOVE	52WK HIGH	52WK LOW	P/E	CONSENSUS TARGET	UPSIDE/DOWNSIDE
AGE	27/02/2023	0.0400	– 2.56%	$0.12	$0.03
BKY	27/02/2023	0.3600	1.41%	$0.64	$0.21
BMN	27/02/2023	1.7100	– 6.59%	$2.49	$0.15
BOE	27/02/2023	2.5500	3.36%	$3.10	$1.61		$3.200	25.5%
DYL	27/02/2023	0.6700	– 5.84%	$1.25	$0.55
ERA	27/02/2023	0.2200	– 4.35%	$0.42	$0.16
LOT	27/02/2023	0.2100	– 6.82%	$0.46	$0.18
NXG	27/02/2023	6.0800	– 3.73%	$8.99	$0.00
PDN	27/02/2023	0.7000	– 1.41%	$0.97	$0.53	-70.2	$1.000	42.9%
PEN	27/02/2023	0.1400	– 6.67%	$0.28	$0.12
SLX	27/02/2023	3.9900	-22.85%	$5.32	$1.04

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