Uranium getting a glow as talk of big supply deficit gains traction

It’s been a long time since uranium caught the eye of mainstream investors but in a shortened pre-Easter week when the price of almost everything else was trending down, it was time for the love-hate nuclear fuel to shine (or should that be glow!).
1st April 2021
Tim Treadgold

It’s been a long time since uranium caught the eye of mainstream investors but in a shortened pre-Easter week when the price of almost everything else was trending down, it was time for the love-hate nuclear fuel to shine (or should that be glow!).

Second-tier investment banks and stockbrokers such as Shaw and Partners have been banging the uranium drum for several months with buy tips on most uranium explorers, including this week’s positive recommendation on Peninsula Energy, which has a promising U.S. project.

But the research note which will travel further is one sent on Tuesday to clients of the topflight bank, Morgan Stanley, which picked up the theme of declining global uranium inventories, lack of new mine development, and growing interest in uranium as a “green” energy source because it doesn’t emit greenhouse gases.

While not forecasting a sudden price rise, Morgan Stanley can see uranium continuing to build on a revival which started in mid-March when the price was $US27.25 a pound, rising by 13% to $US30.85/lb yesterday.

Next stop on the road to recovery, according to the bank, is a price of $US33/lb in the second half of this year before steaming ahead to $US36.50/lb next year – on its way to a game-changing $US48/lb in 2024, a price not seen since 2012, the year after the Fukushima reactor meltdown in Japan.

“As mine supply recovers, we expect the market deficit to narrow, but supply will continue to fall well short of underlying utility consumption,” Morgan Stanley said.

What’s caught the eye of professional investors is activity in the market for surplus stockpiled uranium with specialist funds snapping up tonnes of the fuel in what can be likened to a speculative feeding frenzy.

The starting point for the rush to buy into stockpiled uranium started in February when London-listed Yellow Cake, a buy-and-hold fund, raised capital to buy an extra 440,000lbs of uranium from the government of Kazakhstan at a price of $US27.34/lb.

Because it has pure-play exposure to uranium Yellow Cake’s shares have been performed strongly since mid-March, rising by 15% to £2.55.

Other companies have followed Yellow Cake into the game of buying surplus uranium. Canada’s Denison Mines raised $US86 million last week to buy 2.5 million pounds of the fuel. New York-based UEC raised $US30.5 million for the same purpose, as did ASX-listed Boss Energy, which has just raised $60 million. The funds are being directed into a uranium  purchase.

The deals keep coming with the latest being a move yesterday by Canada’s Uranium Royalty Corporation to spend $US10 million expanding its stockpile.

On the ASX, some uranium stocks have performed well since the start of the year, others have been flat. Deep Yellow has been the star, rocketing from 21c to 63c. Paladin is up from 26c to 37c. Boss is up from 10c to 14c. Vimy is up from 8c to 13c, while Lotus has added just 1c to 14c.

Elsewhere, as hinted, the market was buffeted by a series of shocks which started with the collapse of the trade financier, Greensill Bank, before catching the high-profile share trader, Bill Hwang, whose collapse is expected to cost several big banks, including Nomura and Credit Suisse, several billion dollars.

Those financial setbacks came in a week when the it’s fair to say that the post-Covid recovery paused for a breather (or stalled?) with the blockage in the Suez Canal a potent reminder of fragile international trade routes.

But the coup de grace came on Wednesday morning (Australian time) when the U.S. Government’s 10-year bond rate kicked up to a 14-month high of 1.77% before settling around 1.73% though by then the damage had been done to gold, which lost $US48 an ounce over the week to $1679/oz, a 12-month low.

Gold stocks fell almost across the board with the occasional upward flicker, such as Horizon Minerals, which gained 1c to 11c after reporting excellent drill results from its Crake prospect just 9km from Kalgoorlie in WA with a best hit of 24 metres at 4.9 grams a tonne from just 32m with a 1m core assaying 57.2g/t.

Sector leaders couldn’t resist the gravitational pull of rising U.S. interest rates. Newcrest fell 64c (2.5%) yesterday to $24.91 despite reporting a 15-million-ounce resource at its Red Chris project in Canada. Evolution was down 6c (1.5%) to $4.11 and Northern Star was 17c weaker (1.7%) to $9.58.

Chalice, the rapidly-emerging palladium producer, stood out as a winner thanks to a steady flow of encouraging exploration news, adding 30c over the course of the week to trade at $5.19.

Iron ore stocks held up well despite persistent reports of lower prices ahead. Fortescue added 15c to $20.28. Fenex put on 2c to 24c while Champion Iron added 30c to $5.51.

Lithium and other battery metal stocks had a reasonable week as interest builds in electric cars. Pilbara Minerals added 3c to $1.06 and Galaxy was up 17c to $2.58 while AVZ which reported progress on its Manono project in Africa rose by 2c to 20c.

Potash, a sector with growing interest, received a boost from Fitch Ratings, an organisation usually associated with credit scores, though on this occasion it upgraded price forecasts for most fertilisers as consumer demand for food drives a busy cropping cycle.

Salt Lake Potash and Kalium Lakes, the two local leaders in the rush to develop potash projects based on harvesting the tops of remote dry salt lakes in WA, failed to respond to an upgrade in the potash price. Kalium slipped 1c lower to 22c while Salt Lake was 3c week at 47c.

Other news and market moving events in a short week included:

  • Mincor Resources moved up by 1c to 99c after securing the $55 million debt component of the funding needed to restart nickel mining at Kambalda in WA. Macquarie Bank told clients that development of the Cassini and Durkin North projects was proceeding well, upgrading its price target for the stock to $1.30.
  • Golden Mile reported encouraging assays from its Benalla gold project near Leonora in WA with a best hit of 33m at 1.6g/t from a depth of 48m, including 16m at 2.95g/t from 16m. On the market, the stock added 3.5c to 9.1c.
  • Renergen, an ASX-listed gas explorer focussed on South Africa, reported high-grade hits of helium in its latest drilling, news which lifted the stock by 44c to $2.65.
  • Bryah Resources got a surprise when it re-assayed old core from a vanadium exploration project at Gabanintha in WA to discover high grade gold, including a 10m section grading 27.5g/t from a depth of 53m. On the market, the stock rose by 1.5c to 7.2c, and
  • Strandline slipped 4c to 21c after finalising a $122 million capital raising for its Coburn mineral sands project in WA.

 

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