Energy on fire, but while uranium and lithium stocks surge, oil and gas peers struggle to capitalise

Return of the boom, or a Reddit-fuelled feeding frenzy? That’s the critical question after a week which saw uranium catch fire, along with most other energy commodities, including lithium, oil and gas.
16th September 2021
Tim Treadgold

The answer to the question of whether the boom is back or whether the market this week was dominated by speculators outbidding each other for a slice of the resources pie, is probably a bit of both.

Uranium, after a decade in the deep freeze which followed the Fukushima nuclear reactor meltdown in Japan, has stormed back into favour as an energy metal destined to play a role in transition away from fossil fuels.

Over the past month, the uranium price has gone vertical, soaring from $US30 a pound on August 16 to latest trades at $48.55/lb, a 62% gain which takes the metal back to a price last seen in 2012. Five years ago, uranium was selling for $US17/lb.

Impressive as that rise looks, there is a risk that it might not be sustainable because the starting point for the rush was a book-entry exchange of stockpiled material with producers such as Kazakhstan’s uranium mining business selling surplus material to commodity funds such as Sprott and Yellow Cake which put their name on the same material which remained in storage.

Nuclear power station operators are not yet back in the market and until they return the supply driver (fund buying) is not sufficient to keep the price rising.

Layered on top of that weak foundation of investment fund activity came a swarm of buy tips from WallStreetBets, the forum which created havoc in other sections of the U.S. market earlier this year by its ability to marshal amateur share traders on social media.

Whatever the cause, and however long it lasts, the reality is that this week was a time in the sun for local uranium stocks led by Boss which rose to a 13-year high of 33c, up 7.7c (32%) over the week thanks in part to news that it has appointed an engineering contractor to re-start its mothballed Honeymoon project in South Australia. A year ago, Boss was trading at 10c

Other uranium stocks joined the party with Paladin up 26c to $1.02, taking its rise over the past 12-months to 87c (580%). Deep Yellow added 37c to $1.30, taking its rise over the past 12-months to 96c (290%), while Vimy put on 7.5c to 25c, taking its 12-month rise to 21c (512%).

Terrific as those price moves look, especially since this time last year, there is an unreal feel to them which seasoned analysts at investment banks see as being too far, too fast.

Morgan Stanley, in a note to clients this week, said it remained a uranium bull but “investment demand was outpacing underlying fundamentals.”

The bank said there was “no real tightening” in the market for uranium with the World Nuclear Association seeing a balanced market “all the way to 2028”.

Of particular concern is the potential for Kazakhstan (which produces 45% of the world’s uranium) to restart suspended operations which can produce uranium at $US12/lb and for Cameco in Canada to restart projects such as McArthur River which can produce uranium at $US15/lb.

“Despite these potential supply risks, we remain bullish on uranium in the medium term, forecasting a high of $US49/lb by 2024,” Morgan Stanley said – two days before the price rocketed up to $US48.55/lb.

Uranium, as mentioned earlier, was not the only energy material moving up with the oil and gas sector also enjoying a re-rating as the world continues to emerge from the Covid slowdown.

Natural gas in particular is in strong demand as its “half-way house status” between oil and renewables drives demand in Europe, China and the U.S, where gas has more than doubled over the past six months from $US2.45 per million British thermal units to $US5.43/mbtu.

The price of liquefied natural gas (LNG) in Europe rose this week to $US21.45/mbtu up 290% since March.

Oil is also marching higher, reclaiming a price of $US75 a barrel last seen in July, the highest for three years.

Local oil and gas stocks are reacting slowly to the higher prices, triggering a comment from J.P. Morgan analyst Mark Busuttil that the entire oil sector is trading 50% below the valuation implied by the oil price.

On the market, oil and gas stocks reacted cautiously this week, though sector leader Woodside added $1.81 to $21.04. Santos was up 23c to $6.33. Beach gained 7.7c to $1.10 and Strike Energy crept up by 0.5c to 29c.

Lithium, the battery metal star, wasn’t left behind in the energy rush thanks to a spectacular result from a second auction by Pilbara Minerals of 8000 tonnes of uncontracted spodumene concentrate which attracted bids up to $US2240/t, 58% higher than an earlier auction and close to triple the widely quoted long-term contract price for the metal.

The auction result had a predictable effect on Pilbara’s share price which added 33c to $2.37, taking its rise since the start of the year to $1.50 (171%).

Two other lithium stocks caught the eye of investors this week.

Vulcan Energy, the developer of a brine focused project in Germany, raised $200 million via a placement priced at $13.50 a share, but the extra shares rubbed 97c off the price which slipped to $14.67, while ioneer struck a deal with U.S. platinum producer, Sibanye-Stillwater to invest $US490 million in its Rhyolite Ridge project in the U.S. with ioneer’s shares losing 12c to 60c.

Gold had a moment in the headlines during the week when most of the world’s major producers put in an appearance at the annual Denver Gold Forum in the U.S. with publicity associated with the event helping the price move back above $US1800 an ounce before fading back to $US1793/oz.

Northern Star led the local gold producers with a rise this week of 34c $9.53 while Gold Road attracted interest in Denver when it revealed an expanded exploration budget which helped boost the stock’s share price by 8c to $1.41.

Iron ore stocks weakened as the price of the steel making material continued to track lower with last sales at $US117.50/t, down 49% on the peak price reached in May of $US230/t.

Fortescue Metals led the iron ore sector lower, down 48c to $17.53, taking its decline since the start of the year to $7.27 (29%). Champion Iron lost 7c this week to $5.38 while Fenex swam against the outgoing tide with a rise of 4.5c to 32c.

Other news and market moves this week included:

  • Metal Hawk added 21c to 76c after reporting high grade sulphide mineralisation at its Berehaven nickel project in WA. At one stage the stock was trading at 92c, up 53c (230%) in a month.
  • Okapi said it had acquired control of the historic Sunnyside uranium mine in the U.S. The mine last produced in 2012. On the market, Okapi rose by 3c to 66c.
  • Cyprium gained 0.5c to 23c after reporting a drilling update at its Nifty copper mine in WA which is undergoing a revival after several changes of ownership. Euroz Hartleys, a stockbroking firm, reckons Cyprium is heading to 70c.
  • Panoramic Resources added 1.2c to 22c after reporting solid progress in redeveloping its Savannah nickel mine in WA with ore processing on track for a November start.
  • Kingston Resources said the resource at its Misima project in Papua New Guinea had reached 3.8 million ounces, helping the stock added 0.5c to 20c.
  • Cullen Resources reported the presence of nickel sulphide mineralisation during drilling at its Wongan Hills project in the WA wheatbelt. On the market, Cullen rose  0.6c to 2.2c.
  • Calidus said successful ore processing mill installation had taken progress on its Warrawoona gold project to 60% completion, helping the stock add 2c to 58c.
  • Predictive Discovery rose by 2.7c to 15c after reporting high grade gold intersections in its Bankan project in Guinea with a best hit of 26 metres at 7 grams a tonne from a depth of 407m.
  • Goldman Sachs upgraded its coal price forecasts thanks to strong global energy demand, helping Whitehaven add 14c to $3.14 while Coronado rose 11c to $1.35, and
  • BDO, an accounting firm, said strong investor support for capital raisings by exploration companies this year ensured an “elongated” Australian commodity boom.

The answer to the question of whether the boom is back or whether the market this week was dominated by speculators outbidding each other for a slice of the resources pie, is probably a bit of both.

Uranium, after a decade in the deep freeze which followed the Fukushima nuclear reactor meltdown in Japan, has stormed back into favour as an energy metal destined to play a role in transition away from fossil fuels.

Over the past month, the uranium price has gone vertical, soaring from $US30 a pound on August 16 to latest trades at $48.55/lb, a 62% gain which takes the metal back to a price last seen in 2012. Five years ago, uranium was selling for $US17/lb.

Impressive as that rise looks, there is a risk that it might not be sustainable because the starting point for the rush was a book-entry exchange of stockpiled material with producers such as Kazakhstan’s uranium mining business selling surplus material to commodity funds such as Sprott and Yellow Cake which put their name on the same material which remained in storage.

Nuclear power station operators are not yet back in the market and until they return the supply driver (fund buying) is not sufficient to keep the price rising.

Layered on top of that weak foundation of investment fund activity came a swarm of buy tips from WallStreetBets, the forum which created havoc in other sections of the U.S. market earlier this year by its ability to marshal amateur share traders on social media.

Whatever the cause, and however long it lasts, the reality is that this week was a time in the sun for local uranium stocks led by Boss which rose to a 13-year high of 33c, up 7.7c (32%) over the week thanks in part to news that it has appointed an engineering contractor to re-start its mothballed Honeymoon project in South Australia. A year ago, Boss was trading at 10c

Other uranium stocks joined the party with Paladin up 26c to $1.02, taking its rise over the past 12-months to 87c (580%). Deep Yellow added 37c to $1.30, taking its rise over the past 12-months to 96c (290%), while Vimy put on 7.5c to 25c, taking its 12-month rise to 21c (512%).

Terrific as those price moves look, especially since this time last year, there is an unreal feel to them which seasoned analysts at investment banks see as being too far, too fast.

Morgan Stanley, in a note to clients this week, said it remained a uranium bull but “investment demand was outpacing underlying fundamentals.”

The bank said there was “no real tightening” in the market for uranium with the World Nuclear Association seeing a balanced market “all the way to 2028”.

Of particular concern is the potential for Kazakhstan (which produces 45% of the world’s uranium) to restart suspended operations which can produce uranium at $US12/lb and for Cameco in Canada to restart projects such as McArthur River which can produce uranium at $US15/lb.

“Despite these potential supply risks, we remain bullish on uranium in the medium term, forecasting a high of $US49/lb by 2024,” Morgan Stanley said – two days before the price rocketed up to $US48.55/lb.

Uranium, as mentioned earlier, was not the only energy material moving up with the oil and gas sector also enjoying a re-rating as the world continues to emerge from the Covid slowdown.

Natural gas in particular is in strong demand as its “half-way house status” between oil and renewables drives demand in Europe, China and the U.S, where gas has more than doubled over the past six months from $US2.45 per million British thermal units to $US5.43/mbtu.

The price of liquefied natural gas (LNG) in Europe rose this week to $US21.45/mbtu up 290% since March.

Oil is also marching higher, reclaiming a price of $US75 a barrel last seen in July, the highest for three years.

Local oil and gas stocks are reacting slowly to the higher prices, triggering a comment from J.P. Morgan analyst Mark Busuttil that the entire oil sector is trading 50% below the valuation implied by the oil price.

On the market, oil and gas stocks reacted cautiously this week, though sector leader Woodside added $1.81 to $21.04. Santos was up 23c to $6.33. Beach gained 7.7c to $1.10 and Strike Energy crept up by 0.5c to 29c.

Lithium, the battery metal star, wasn’t left behind in the energy rush thanks to a spectacular result from a second auction by Pilbara Minerals of 8000 tonnes of uncontracted spodumene concentrate which attracted bids up to $US2240/t, 58% higher than an earlier auction and close to triple the widely quoted long-term contract price for the metal.

The auction result had a predictable effect on Pilbara’s share price which added 33c to $2.37, taking its rise since the start of the year to $1.50 (171%).

Two other lithium stocks caught the eye of investors this week.

Vulcan Energy, the developer of a brine focused project in Germany, raised $200 million via a placement priced at $13.50 a share, but the extra shares rubbed 97c off the price which slipped to $14.67, while ioneer struck a deal with U.S. platinum producer, Sibanye-Stillwater to invest $US490 million in its Rhyolite Ridge project in the U.S. with ioneer’s shares losing 12c to 60c.

Gold had a moment in the headlines during the week when most of the world’s major producers put in an appearance at the annual Denver Gold Forum in the U.S. with publicity associated with the event helping the price move back above $US1800 an ounce before fading back to $US1793/oz.

Northern Star led the local gold producers with a rise this week of 34c $9.53 while Gold Road attracted interest in Denver when it revealed an expanded exploration budget which helped boost the stock’s share price by 8c to $1.41.

Iron ore stocks weakened as the price of the steel making material continued to track lower with last sales at $US117.50/t, down 49% on the peak price reached in May of $US230/t.

Fortescue Metals led the iron ore sector lower, down 48c to $17.53, taking its decline since the start of the year to $7.27 (29%). Champion Iron lost 7c this week to $5.38 while Fenex swam against the outgoing tide with a rise of 4.5c to 32c.

Other news and market moves this week included:

Metal Hawk added 21c to 76c after reporting high grade sulphide mineralisation at its Berehaven nickel project in WA. At one stage the stock was trading at 92c, up 53c (230%) in a month.

Okapi said it had acquired control of the historic Sunnyside uranium mine in the U.S. The mine last produced in 2012. On the market, Okapi rose by 3c to 66c.

Cyprium gained 0.5c to 23c after reporting a drilling update at its Nifty copper mine in WA which is undergoing a revival after several changes of ownership. Euroz Hartleys, a stockbroking firm, reckons Cyprium is heading to 70c.

Panoramic Resources added 1.2c to 22c after reporting solid progress in redeveloping its Savannah nickel mine in WA with ore processing on track for a November start.

Kingston Resources said the resource at its Misima project in Papua New Guinea had reached 3.8 million ounces, helping the stock added 0.5c to 20c.

Cullen Resources reported the presence of nickel sulphide mineralisation during drilling at its Wongan Hills project in the WA wheatbelt. On the market, Cullen rose 0.6c to 2.2c.

Calidus said successful ore processing mill installation had taken progress on its Warrawoona gold project to 60% completion, helping the stock add 2c to 58c.

Predictive Discovery rose by 2.7c to 15c after reporting high grade gold intersections in its Bankan project in Guinea with a best hit of 26 metres at 7 grams a tonne from a depth of 407m.

Goldman Sachs upgraded its coal price forecasts thanks to strong global energy demand, helping Whitehaven add 14c to $3.14 while Coronado rose 11c to $1.35, and

BDO, an accounting firm, said strong investor support for capital raisings by exploration companies this year ensured an “elongated” Australian commodity boom.

 

 

 

 

 

 

 

 

 

 

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