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Uranium stocks have skyrocketed

The commodity that dare not speak its name is on a tear. This month, the spot price of uranium has shot past US$50 per pound of uranium oxide (U3O8) for the first time since 2012.

Uranium plumbed the depths of US$20 a pound in the aftermath of the tsunami-driven meltdown at Japan’s Fukushima nuclear power plant in March 2011, as nuclear plants the world over were shut down, and producing nation Kazakhstan ramped-up production. It took a long time to start moving off that low, which has been a massive problem for the industry: uranium analysts think that spot prices would have to stay at mid-US$40s levels to induce mothballed production to resume – while somewhere around US$60 a pound would be needed to make the numbers work for any new mines.

There’s still a lot of uranium produced and used. According to industry body the World Nuclear Association, there are about 440 nuclear reactors around the world. A recent market study by market research company Global Industry Analysts Inc. (GIA) estimated the global market for uranium at 80,400 tonnes in 2020. GIA projects that market to reach 90,600 tonnes by 2026. The World Nuclear Association expects the market to grow by 26% between 2020 and 2030.

The rise is seen as coming as countries grapple with the retirement of fossil-fuel-powered energy generating capacity, in the name of reducing carbon-dioxide emissions, before renewable energy (if it ever can) is ready to take over the task of the baseload energy on which countries rely. It is a committed Green’s worst nightmare: to achieve their net-zero carbon-dioxide emissions Nirvana, they may have to rely on their nemesis, nuclear energy. But nuclear is emerging as the only realistic zero-emissions alternative, in baseload terms.

This is what is behind the roll-out of nuclear power around the world. According to the World Nuclear Association (WNA), current global nuclear capacity is at about 394 gigawatts (GW) from 442 reactor units. About 60 GW of capacity is currently under construction, mostly in Asia: there are 52 reactors under way, with 12 in China and 12 in the rest of Asia. The International Atomic Energy Agency (IAEA) now expects world nuclear generating capacity to double by 2050.

That news is pertinent to Australia, which produces about 10% of the world’s uranium exports, worth more than $730 million a year at current prices. More interestingly, Australia possesses about one-third of the world’s known uranium reserves.

It is an artificial market, however, in that only six Australian uranium mines are approved by the federal and state governments to mine and export the stuff (uranium mining is currently banned in Queensland and the McGowan Western Australia Government has announced bans on new mines.) Only three of those approved are operating: and one of those, Ranger in the Northern Territory, operated by Energy Resources of Australia, ceased production from stockpiled ore in January this year (although it has further mining plans for the deposit). BHP produces uranium at Olympic Dam in South Australia – the company doesn’t exactly shout this from the rooftops, but in FY21 it produced 3,267 tonnes of uranium oxide, down 11% on the previous year. The Beverley mine in South Australia is operated by Heathgate Resources, which is owned by US-based nuclear company General Atomics.

The Honeymoon mine in north-western New South Wales – owned by Boss Energy (BOE) – is fully permitted, but it was mothballed by its previous owner, Russian company Uranium One, in 2013 because it had become too costly to run. Boss bought the project, which has never been fully commissioned, in September 2015.

Toro Energy (TOE) owns the Wiluna uranium project in WA, which has received federal and state government approvals for mining uranium at several deposits (with vanadium as a by-product) as well as for processing and export infrastructure.

These, and other Australian hopefuls, are sounding more confident by the day, but they still need to get confident that the uranium price can stay strong, before they commit to their plans.

At a spot price of above US$50 (many of the long-term contracts under which uranium producers deliver to energy utilities are above spot prices), this is far from a wild dream. But the conundrum for uranium producers and hopefuls is to see this happen for long enough to justify the decision either to resume idled production, or commit to a new mine, which is a lot harder.

Then there are the producers around the world for whom even the improved prices are still below their cost of production.

The uranium industry knows that the price has been given a massive fillip by the launch in August of the Sprott Physical Uranium Trust, run by Canadian fund manager Sprott Inc., which has increased its holding of uranium by 45% to back its US$1.3 billion ($1.8 billion) issue of units. Sprott has bought 1.45 million pounds of uranium oxide since mid-August and that buying has put pressure on actual uranium users, such as energy utilities.

The industry also knows that huge producers such as Canadian company Cameco – which curtailed production in 2018, in response to prices, and more recently has been hampered by COVID-19 – could decide to return to full production, which would have to lower current prices if it eventuated. Uranium is not yet in a strong-enough bull market, taking its holding of physical uranium to 27.7 million pounds.

Consensus around the industry appears to be that the price would need to be sustained at about US$60 a pound to bring commitments new mine developments.

Some analysts see US$80 a pound as possible – even US$100 a pound – but each uranium producer would be happy to see a sustained price above its individual cost of production.

While producers are wary about the market, the ASX uranium stocks have skyrocketed.

Here are some of the 12-month price rises – they are a problem for anyone considering investing in the uranium space. Quite simply, the value has been taken out of all of these situations by people who have already bought-in. Where there are analysts’ price targets, they have been exceeded amid the “uranium boom” mentality.

Some of these stocks will become producers – but they’re all very frothily valued right now.

1. Boss Energy (BOE, 34.5 cents)

Market capitalisation: $786 million

12-month price performance: +342%

Boss says Honeymoon could produce at an average all-in sustaining cost (AISC) of production – a figure that incorporates not only the “cash cost” of production, but all the costs that allow production to be sustained – of $US25.60 a pound of uranium oxide over its life-of-mine (LOM), currently estimated at 11 years. That could give the US$80 million Honeymoon re-start project an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 62%.

2. Toro Energy (TOE, 4.5 cents)

Market capitalisation: $175 million

12-month price performance: +246%

Toro is working on a scoping study at its priority Lake Maitland project, to get a clearer idea of what its costs of production would be, and whether the uranium market provides the required sustained price incentive. The study may demonstrate that such pricing could be lower than previously understood.

3. 92 Energy (92E, 79.5 cents)

Market capitalisation: $52.6 million

12-month price performance: Listed in April 2021, at 20 cents a share, after raising $7 million.

The company owns the Gemini uranium project in the Athabasca Basin of the Canadian province of Saskatchewan.

4. Bannerman Energy (BMN, 37.5 cents)

Market capitalisation: $452 million

12-month price performance: +814%

Bannerman’s Etango project in Namibia is one of the world’s largest undeveloped uranium assets

5. Peninsula Energy (PEN, 28.5 cents)

Market capitalisation: $291 million

12-month price performance: +323%

Owns the Lance uranium projects in Wyoming, USA, which it is working on fast-tracking to production. While it hasn’t started mining, Peninsula has long-term sales contracts in place, extending to 2030, and is sitting on 300,000 pounds of uranium it bought on the market.

6. Vimy Resources (VMY, 26.5 cents)

Market capitalisation: $279 million

12-month price performance: +597% 

Vimy’s Mulga Rock uranium project in Western Australia has received approval from state and federal governments.

7. Alligator Energy (AGE, 10.5 cents)

Market capitalisation: $292 million

12-month price performance: +2000%

In early August AGE raised $10.7 million to accelerate development of its two main uranium projects, Samphire in South Australia and Alligator Rivers in the Northern Territory. The company is putting Samphire through scoping and into feasibility work.

8. Valor Resources (VAL, 2.3 cents)

Market capitalisation: $68 million

12-month price performance: +475%

Has uranium projects in Canada’s Athabasca Basin – its Hook Lake project is considered particularly high-grade.

9. Energy Resources of Australia (ERA, 48.5 cents)

Market capitalisation: $1.8 billion

12-month price performance: +213%

Sitting on plans for the underground resources at Ranger, which would be most costly; ERA still holds substantial inventories of uranium oxide “that it aims to sell down opportunistically.”

10. Deep Yellow (DYL, $1.37)

Market capitalisation: $453 million

12-month price performance: +315%

Deep Yellow has three uranium projects in Namibia – Reptile, Nova and Yellow Dune.

A pre-feasibility study was completed in early 2021 on the 3-million-pounds-a-year Tumas deposit at Reptile tenements — the company began a definitive feasibility study (DFS) in February 2021.

11. A-Cap Energy (ACB, 13.5 cents)

Market capitalisation: $118 million

12-month price performance: +543%

Owns the currently mothballed Letlhakane project in Botswana, also considered one of the world’s largest undeveloped uranium deposits. Also owns the undeveloped Wilconi nickel-cobalt project in WA.

12. Energy Metals (EME, 41 cents)

Market capitalisation: $86 million

12-month price performance: +215%

Owns eight mothballed exploration projects in the Northern Territory and WA; major project is the Bigrlyi uranium-vanadium project, at which a prefeasibility study (PFS) was completed in 2011. The company is progressively updating that work. 66% shareholder is CGN Uranium Resources Co. Ltd., a subsidiary of the state-owned China Nuclear Power Group (CGN), one of the largest nuclear power providers in the world.

13. Laramide Resources (LAM, $1.00)

Market capitalisation: $177 million

12-month price performance: +186%

Owns uranium projects in Australia and the United States; in Australia, its two main projects are Westmoreland in north-west Queensland – one of the largest undeveloped uranium deposits in Australia – and Murphy in the NT.

14. Paladin Energy (PDN, $1.03)

Market capitalisation: $2.7 billion

12-month price performance: +626%

Paladin Energy owns 75% the Langer Heinrich project in Namibia, which was shuttered because of low prices back in 2018 – PDN plans to re-open the mine at a cost of $81 million and have a mine life of 17 years. Peak production would be 5.9 million pounds uranium oxide (U3O) in each of seven years. In Australia, Paladin wholly owns two advanced uranium exploration projects, at Mount Isa in Queensland and Manyingee in Western Australia. In Canada, Paladin owns a 60% interest in the Michelin deposit in Labrador, among the largest uranium deposits in North America

15. Lotus Resources (LOT, 31 cents)

Market capitalisation: $297 million

12-month price performance: +210%

Lotus owns the mothballed Kayelekera uranium mine in Malawi, which it is currently working toward bringing back into production. The government of Malawi is a 15% co-owner of the project.

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