2 big reasons why uranium stocks are due for a hot streak

Demand for nuclear power is on a sharp upward trajectory, tipped to rise almost 3% a year by 2035, as detailed in a recent report from Canaccord Genuity.

There are two primary reasons for this:

1. The energy transition – The energy source’s lower carbon intensity versus hydrocarbon-based fuels - nuclear energy contributes around 400GW of capacity to 32 countries, removing some 1.5Gt of global emissions and 180 billion cubic metres of global gas demand a year.

2. Firming capacity ­– While wind and solar sources are expected to lead the push to replace fossil fuels, they need to be complemented by dispatchable resources. One of these resources is natural gas, another is nuclear power, which relies on uranium ­– an element whose price has risen more than 5% in the last two months.

An opaque market that’s relatively small and less transparent than other commodities like oil or gold, uranium prices are less accessible to the public. But private organisation UxC establishes a price by monitoring uranium market activities, including offers, bids, and transactions.

Uranium spot price

The uranium price is up almost 60% since January 2021 and 20% in 2023 so far

Analysts at Canaccord Genuity are bullish on prices, forecasting a long-term price of US$75. In addition to the points raised above, their positivity is underpinned by a decade of underinvestment and major mine closures.

These include Cominak in Niger, formerly the world’s largest underground uranium mine, and Ranger in Australia’s Northern Territory. The first of these was near Akokan in Niger, which produced 75,000 metric tons of uranium from 1978 until March 2021, when it closed after its ore reserves had been depleted.

The Ranger uranium mine exported its last shipment of uranium ore concentrate in 2021 and the mine is currently in decommissioning.

In recent weeks, Cameco (NYSE: CCJ), one of the world’s largest global providers of uranium, made an announcement that further highlights the geopolitical challenges for the sector. This followed an attempt to overthrow the government of Niger in late July (Niger provides 5% of global uranium supply and 24% of EU imports).

Cameco updated guidance, cutting 2023 estimates for its Cigar Lake mine, citing equipment challenges and upcoming maintenance at its McArthur River operations, as reported by Morgan Stanley.

"[Management] cites impacts of long care and maintenance, personnel availability and supply chain challenges,” said Morgan Stanley analysts.
“All else equal, this would widen the 2023 deficit we forecast by around 2 million pounds …And supply risks in Niger.”

The attempt to overthrow the Niger government also creates supply uncertainty. So far, it "does not consider this event to have any immediate impact on its activities in Niger" but continues to monitor the situation, said Orano, a benchmark supplier in the field of operations support for nuclear sites.

These closures and others have seen the primary supply of uranium, which hit a 12-year low of around 123 million pounds versus market demand exceeding 180 million pounds.

“While secondary supply shrinks this deficit to around 30Mlb, the imperative for new production is obvious and we continue to believe that the current spot price of US$58.3 a pound is insufficient to incentivise the required level of development,” say the Canaccord Genuity analysts.

“The uranium market feels coiled to us. With growing support from communities and governments in response to the significant decarbonisation challenge, the prospects for existing generators have become more assured, and we expect the demand for uranium to sustain its upward trajectory.”

In a 24 August report, they identified 10 early-stage uranium companies that are focused on helping close the supply deficit. The five largest are outlined below:

Bannerman Energy (ASX: BMN)

Market cap $304 million

Berkeley Energia (ASX: BKY)

Market cap $189 million

Aura Energy (ASX: AEE)

Market cap $157 million

Alligator Energy (ASX: AGE)

Market cap $129 million

Elevate Uranium (ASX: EL8)

Market cap $115 million