Uranium Week: Term Markets On The Move

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

It appears a long-awaited up-tick in utility demand for term delivery contracts may be finally coming to pass in the uranium market.

-Spot price up 27% year on year
-Notable jump in term market demand
-Paladin reaches for Summit

By Greg Peel

Two weeks ago the uranium spot price jumped on the news the US Department of Commerce would indeed investigate the US uranium production industry, which is petitioning for government support as a matter of national security, but more so on the news Cameco had decided to extend its Macarthur River mine and Key Lake mill shutdown indefinitely.

Activity in the spot market continued to be brisk last week as 1.3mlbs U3O8 equivalent changed hands in seven transactions, industry consultant TradeTech reports. Utilities, traders, producers and speculators all featured on the buy-side.

Sellers were nevertheless there to enjoy the spoils following the prior week’s big jump in price. TradeTech’s weekly spot price indicator rose only US10c further to US$25.95/lb.

The spot price has seen an uninterrupted rally over the last five weeks to mark a 9% gain for the year and 27% over twelve months. The 2018 price average to date of US$22.49/lb is US42c/lb above 2017’s average, TradeTech notes.

TradeTech’s spot price indicator ended the month of July at US$25.85/lb, up from US$22.75/lb at end-June. Almost 6mlbs of U3O8 equivalent changed hands in the month.

Beginning of Term?

Market participants have been convinced utility demand in term markets will pick up in a month or two. The problem is they’ve been convinced for at least a year.

Last week saw four transactions in the mid-term market, TradeTech reports. One utility is seeking delivery of 10.8mlbs U3O8 equivalent over 2021-29 and another is seeking close to 10mlbs over 2021-30.

Is that a wolf?

TradeTech’s monthly term price indicators increased to US$29.50/lb (mid) at end-July, up from US$26.50/lb at end-June, and US$31.00/lb (long), up from US$28.00/lb.

Down But Not Out

Australia’s Paladin Energy ((PDN)) has made a full takeover bid for Summit Resources ((SMM)) in an all-scrip offer representing a 66% premium on the day. Paladin already holds 82.08% of Summit, having built a stake commencing in 2007 when uranium was the hot-ticket item in the commodities space.

It seems an unlikely move from a company that only recently went into liquidation after failing to encourage a Chinese investor to exercise its option over Paladin stock. In today’s climate of commercially unviable uranium prices, Paladin was first forced to shut down its Malawi operation and finally its flagship Namibian mine.

The company was pulled out of administration by creditors and the move to tie up Summit is one intended to reduce overall costs in the group, as those creditors require.

It’s all well and good, but Summit’s extensive uranium resources are in the state of Queensland, in which uranium production is banned. Given the state is a major producer of coal, and thus a major employer of coal miners, any decision by a sitting Premier to lift the ban would be seen as “very brave”.

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