Fuel frenzy a boon for Australian uranium sector

A fundamental restructuring of global uranium supply and pricing presents an “incredible’’ opportunity for producers and late-stage explorers, analysts say (reports The Australian).
16th June 2022

The Russian invasion of Ukraine, which has thrown fossil fuel markets into chaos particularly across Europe, has also affected the uranium sector, with nuclear energy producers historically sourcing a lot of material from Russia and Kazakhstan.

While sanctions on Russian supply have not been put in place to date, US officials have indicated it is seeking $US4.3bn ($6.1bn) to buy domestically produced uranium, which it would then contract and sell to US buyers. Legislation to establish the strategic uranium reserve was introduced to the US Congress in April.

Equities analysts at Cannaccord Gennuity say in a note to clients that this “is the clearest signal to date that the US is seeking to accelerate its migration away from reliance on Russian supply (23 per cent market share of enriched uranium)’’.

“This positioning will clearly not be missed by utilities and is highly supportive of our view that demand for Western-origin pounds is increasing, creating an even more pronounced supply deficit in the West than in the aggregated global market,’’ they say.

Similarly, analysts at Bell Potter say the US move would assist in reviving the US enrichment industry, which would in turn be supportive of uranium producers. “We view the potential US decision to rebuild domestic enrichment capacity as supportive for the overall uranium industry, as it continues to confirm our thesis for a revival in uranium and nuclear energy,” their note reads.

“We believe the uranium market could partially bifurcate into two streams, one sourcing and supplying nuclear facilities aligned with Russia (e.g. from Kazakhstan into Russia and eventually China) and one sourcing from Western-aligned nations and supplying countries like the US, France and the UK.”

Bell Potter says that for Australian companies Paladin Energy and Boss Resources, “the fundamentals couldn’t be better’’.

Bell Potter has a price target of $3.32 per share for Boss – $1 higher than the current price – and $1.06 for Paladin, 30c higher than Friday’s closing price of 76c.

“Boss Energy and Paladin Energy remain our top picks in the uranium sector,’’ Bell Potter says.

“Boss announced in early June they had reached a final investment decision for their Honeymoon uranium asset, with a target date for first production around the end of 2023.

“Paladin, who signed a tender award with US utility Duke Energy in March, will look to reach a final investment decision for Langer Heinrich in July.

“Given that Boss and Paladin are fully capitalised restart projects, they are both well-positioned to progress binding offtake discussions with utilities.’’

Boss Resources managing director Duncan Craib, speaking from New York after attending the World Nuclear Fuel Market conference in Canada last week, said the mood was buoyant among emerging producers.

Mr Craib said the pendulum had swung in favour of producers in terms of pricing, which had traditionally been dictated by purchasers. “Fuel buyers are particularly anxious and nervous with what’s happened with Russia invading Ukraine, so that’s really shaken their confidence,” he said.

The bottleneck was around enrichment and conversion, and with Russia accounting for about 40 per cent of enriched material, any reduction in this would create greater demand for mined uranium, he added. Mr Craib said the market was moving from fixed price contracts, to more “market-related contracts” which have a floor and a ceiling price correlated to the spot price. “That’s the way the industry’s headed and that’s the way we want to head,’’ he said.

“In the past the utilities or the fuel buyers controlled the market, they could define what they would enter into. Now it has reverted to the producers saying ‘we’re not going to enter into a fixed-base contract. We want a market-related contract’.’’

Boss’s all-in sustaining costs for production from Honeymoon, which is expected to ramp up to 2.45 million pounds of uranium per year within three years and produce for at least 11, are forecast at $US25.60 per pound against the spot price of $US52.85 per pound currently.

Honeymoon’s production is currently uncontracted giving the company exposure to uranium price upside.

Mr Craib said western fuel buyers would naturally be looking to diversify away from Russian supply, which was a big opportunity for Australia.

The Honeymoon mine is in South Australia, just west of Broken Hill.

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