6 ways to play uranium

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After a long time in the investment doghouse, uranium is having a great 2023.  Beginning the year at US$48.97 a pound, the uranium price has surged above $65 per pound this month, to its highest since the Fukushima nuclear accident in 2011.

Nuclear energy is being widely mooted as the only viable option to provide sufficient baseload power supply, while achieving zero emissions. In Australia, this has seen the federal Opposition calling nuclear power to be included in Australia’s future energy mix. It is almost incredible to those who grew up with nuclear energy being vilified to see increasingly advocated as a 24/7 clean energy source.

The World Nuclear Association recently forecast that global uranium demand would double from 65,650 tonnes this year to 130,000 tonnes by 2040.

As at July 2023, there were 436 operating nuclear reactors in the world, 59 under construction (23 in China) and 111 planned (China 45, Russia 25, India 12 and Canada 11). Producer Paladin Energy says there are 266 reactors proposed, in 31 countries.

COVID-19 impacts on production still have not fully washed through the market, and political turmoil in supplier countries such as Russia, Kazakhstan and Niger are causing supply uncertainty – at a time of rising demand and shrinking stockpiles.

All of this is flowing into the price. It is still a long way short of the all-time high of around US$140 a pound recorded in 2007 at the height of the last uranium boom, but it is also a long way above the depths of the post-Fukushima uranium bear market in 2016, which saw mines closing at levels around US$18 a pound.

However, the uranium price is not yet at the level considered to be required to give miners the incentive to bring deposits to mining – that price is considered to be about US$60–US$75 a pound, with anything above that a bonus.

Uranium users have signalled that they are very keen on buying from mines in relatively reliable Tier-1 jurisdictions. That’s where the ASX cohort of uranium miners comes in. Some of the ASX-listed group have low-cost projects that will make good money if the uranium price can stay above current levels, or even better, push higher.

  1. Paladin Energy (PDN, 98.5 cents)

Market capitalisation: $2.9 billion

12-month total return: 12.9%

Three-year total return: 89.1% a year

Analysts’ consensus price target: $1.104 (Stock Doctor/Thomson Reuters, seven analysts), $1.123 (FN Arena, one analyst)

Australian uranium producer Paladin Energy suspended operations at its Langer Heinrich mine in Namibia in 2018 due to low uranium prices (Paladin holds a 75% interest in Langer Heinrich) but in 2020, the company committed to reopening the mine, as well as restarting exploration and development activities on the company’s other uranium assets in Canada and Australia (Paladin has a 75% interest in the Michelin project in Canada and wholly owns the Mt Isa and Manyingee projects in Australia.)

The plan to restart the Langer Heinrich mine was designed in 2020. The initial price tag to restart the mine was initially estimated at US$81 million, but mining-sector inflation has pushed that to US$118 million. The project is fully funded and remains on-track and on-budget; it is about 65% complete, with first production targeted for the first quarter of calendar 2024.

At full capacity, Langer Heinrich will be a top-ten producer: Paladin is fully contracted for the first year of operations and substantially contracted for the second year. Bell Potter anticipates demand for material will increase over the next six to 12 months, leading to more long-term offtake contracts. Importantly, the all-in sustaining cost (AISC) per produced pound is estimated at about US$32. (The AISC is a figure that incorporates not only the “cash cost” of production but all the costs that allow production to be sustained: it is the minimum price for which an ounce of gold must sell on the market to allow a producer to break even.)

The project’s life-of-mine production is estimated at 77.4 million pounds of uranium oxide over a 17-year mine life. Returning Langer Heidrich to production is a relatively low risk “brownfield” restart; and with US$126 million in available cash, Paladin is well-placed to pursue growth opportunities and fund exploration. Paladin looks a good situation, but analysts are cautious in terms of potential upside.

  1. Boss Energy (BOE, $4.50)

Market capitalisation: $1.6 billion

12-month total return: 73.1%

Three-year total return: 95.7% a year

Analysts’ consensus price target: $3.45 (Stock Doctor/Thomson Reuters, six analysts), $3.60 (FN Arena, three analysts)

At its Honeymoon project in South Australia, Boss Energy is also working to restart production, with first production expected before the end of 2023.

The Honeymoon uranium project is located in South Australia, 80 kilometres northwest of the town of Broken Hill. The project hosts the historical Honeymoon uranium mine, which was Australia’s second operating in-situ recovery (ISR) uranium mine, beginning production in 2011 under previous owner, Uranium One. Operations at Honeymoon were suspended in November 2013 in response to falling uranium prices, with Boss Energy subsequently buying the project in 2015. Since it bought Honeymoon, the company has increased the resource by more than five times.

Boss has a Joint Ore Reserves Committee (JORC, the Australian standard for reporting) resource at the Honeymoon Restart Area (HRA) of 36 million pounds of uranium oxide, giving it a life-of-mine (LOM) of ten-plus years at a forecast production rate of 2.45 million pounds a year, at an AISC of $US25.60 per pound over the life of the mine. If the uranium price was $US60 a pound, Honeymoon would have an internal rate of return (IRR) of 47 per cent.

But the LOM plan is based on only half of the existing JORC resource: there is a further 35.6 million pounds in JORC Resources outside the HRA, and significant exploration potential. Just last month, Boss announced fresh high-grade uranium intercepts from its most recent drilling. So, it looks like Honeymoon will be a larger project, with more uranium in it.

Boss is fully funded to meet Honeymoon’s forecast $113 million capital cost. The company also has a 1.25-million-pound uranium stockpile on hand at Honeymoon, which is valued at about $US100 million.

However, Boss Energy is another stock that analysts believe has shot past fair value.

  1. Deep Yellow (DYL, $1.065)

Market capitalisation: $807 million

12-month total return: 12.7%

Three-year total return: 47% a year

Analysts’ consensus price target: 95.5 cents (Stock Doctor/Thomson Reuters, two analysts),

Following its merger with Vimy Resources in August 2022, Deep Yellow has projects in two different jurisdictions, one in West Australia, and one in Namibia. Really important now in this new sort of environment.

Deep Yellow’s flagship project is Tumas in Namibia. But the merger brought to Deep Yellow the Mulga Rock project in Western Australia, which Deep Yellow believes it can turn from primarily a uranium project into one with potential for other critical minerals including copper, nickel, cobalt, zinc and rare earths, (particularly neodymium and praseodymium), as well as extending the present estimated mine life.

The company says uranium buyers are looking for global diversity of mines, and that they like the fact that the company has projects in two Tier-1 mining jurisdictions.

At Tumas, the definitive feasibility study (DFS) was completed in January 2023. The resource is 114 million pounds of uranium oxide, with the ore reserve standing at 67.3 million pounds, enough for an initial life-of-mine (LOM) of 22.5 years, producing 3.6 million pounds of uranium oxide a year, at an AISC of US$38.72 a pound. There is potential to grow mine-life to 30-plus years through additional resources. Deep Yellow expects to make the final investment decision (FID) in mid-2024, in which case it would be aiming for production in 2026. But the company also says Tumas needs the uranium price to stay above US$65 a pound, to go ahead.

At Mulga Rock, Deep Yellow has a mineral resource of 71.2 million tonnes at a grade of 570 parts per million (ppm), for 90.1 million pounds of uranium oxide, positioning Mulga Rock as one of the largest undeveloped uranium projects in Australia. The company estimates a production rate of 3.5 million pounds a year, with an initial life-of-mine of 15 years, at an AISC of US$28.09 a pound over the first five years, and US$31.22 a pound over life-of-mine. Deep Yellow believes it can make Mulga Rock a poly-metallic operation with extended life-of-mine beyond the current 15 years, with a significant increase to the project value.

The earliest Mulga Rock could come into production is probably around 2028. With both assets in production, Deep Yellow would be the largest pure-play uranium producer on the ASX, with a production capacity of 7 million pounds a year, and the largest uranium resource base of any ASX-listed company. But the market also believes DYL is over-valued at this point.

  1. Bannerman Energy (BMN, $2.47)

Market capitalisation: $2.9 billion

12-month total return: 17.6%

Three-year total return: 77.6% a year

Analysts’ consensus price target: $3.20 (Stock Doctor/Thomson Reuters, one analyst)

Bannerman’s flagship asset is the Etango project in Namibia, which it has been exploring since 2006.

Etango is one of the world’s largest undeveloped uranium assets, with a world-class mineral resource endowment of 207 million pounds of contained uranium oxide.

Bannerman originally contemplated a 20-million-tonnes-a-year (mtpa) operation at Etango, but has scaled that back significantly, to an 8 Mtpa operation known as Etango-8. The final investment decision (FID) is expected in the first half of 2024.

According to the pre-feasibility study (PFS), the $274 million Etango-8 project would have total production, over an initial life of 15 years, of 52.6 million pounds of uranium oxide, at an AISC of US$38.10 a pound.

Analysts see good scope for upside for Bannerman – I think it represents good value in the frothy ASX uranium space.

million worth of shares.

 

  1. Alligator Energy (AGE, 5.2 cents)

Market capitalisation: $185 million

12-month total return: –18.2%

Three-year total return: 121% a year

Analysts’ consensus price target: 5 cents (Stock Doctor/Thomson Reuters, one analyst)

Alligator Energy has four uranium projects in South Australia and the Northern Territory in various stages of exploration, with the Samphire project in South Australia the most advanced, with a recent scoping study confirming that in-situ-recovery (ISR) mining similar to that used at Honeymoon would be viable.

The JORC resource is estimated at 18.1 million pounds of uranium oxide and growing, with the initial scoping study based on 10 million pounds of uranium oxide over a mine-life of 12 years, using the Blackbush deposit only. The scoping study projected low-impact ISR mining at an AISC of US$30.20 a pound.

Alligator recently raised $25.5 million through a share placement at 5.2 cents, which will be used to help fund a feasibility study and mining lease application. The company is targeting an updated JORC mineral resource estimate and updated scoping study for Samphire during November 2023.

  1. Betashares Global Uranium ETF (URNM, $8.18).

By far the simplest, most cost-effective and most diversified way to invest in uranium on the ASX is the Betashares Global Uranium ETF (URNM, $8.18).

With net assets of $60.6 million, this ETF provides exposure to a portfolio of global companies involved in the mining, exploration, development and production of uranium, modern nuclear energy, or companies that hold physical uranium or uranium royalties. URNM provides a cost-effective and easily accessible way to gain exposure to companies involved in the uranium industry, through a single ASX trade. The ETF is managed for 0.69% a year (or $69 for every $10,000 invested).

 

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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