EU’s support for nuclear power fuels bullish outlook for uranium

There is growing recognition that nuclear power is key to meeting both the energy and decarbonisation challenges. But the supply side of the uranium equation is yet to catch on, paving the way for further price increases. And Boss Energy, already among Australia’s uranium front runners, could add copper to its story. Plus, bumper drilling results add to the buzz at Genesis over pending arrival of Raleigh Finlayson.

There was no surprise in the real world with the recent decision by the European Union’s executive arm to include nuclear power (and gas) in a draft of its Sustainable Taxonomy.

Its what?

It is fancy Orwellian-type talk for a classification system under which sources of energy and other activities are classified as bad, or good, from a sustainability perspective.

So it was a big deal for uranium, assuming nuclear power continues to be viewed as a sustainable activity in the final EU taxonomy, as it surely will. The same goes for gas.

That’s because more than ever, Europe is waking up to the fact that its lofty green targets can only be meet with nuclear power and gas as part of the mix.

And in the here and now, it would be nice to have more of both as a shield to the (remote) possibility that Vladimir Putin turns off gas supplies to Europe, with Russian supplies accounting for about 40% of supply.

Nuclear power has long been on China’s good list. Demonstrating that nuclear power has to be part of its energy mix as its decarbonisation/clear sky effort picks up pace, Beijing recently ordered up another 150 nuclear reactors.

Just as well too as its addiction to fossil fuels continues to grow. Annual coal production there is now running at a staggering 4.6 billion tonnes. That does not make for clear skies, hence the push on more nuclear power.

Prices:

The uranium price did not shoot the lights out last year like the battery metals of lithium and copper did.

But its price performance was nevertheless encouraging stuff for the band of ASX-listed uranium stocks with advanced projects ready to go when prices get to around the $US60/lb mark.

The (spot) price is currently $US43/lb, having come up from around $US30/lb level at the start of 2021.

Physical buying by the newly formed Sprott uranium fund was a big factor in the price rise.

The fund bought 23mlbs in 2021 (13% of annual demand) and it will be coming back for more, further tightening things up against a backdrop of a fundamental supply deficit (and the potential for supplies from Kazakhstan to be affected by the stand-off in the Ukraine).

Although still short of the $US60/lb needed to incentivise the new production required to lift mine supply from 12-year lows, the price gain for the nuclear fuel in 2021 was more than enough to fire up interest in the ASX sector.

In a uranium outlook report for 2022, Canaccord noted that the uranium equities it covers rose by an average of 110% in 2021.

“In our view, the recent rise in prices would not have occurred if there was not already a fundamental supply deficit,” Canaccord said, after referencing the Sprott fund buying.

Canaccord has pulled back from a forecast in September last year for a run up in the price of uranium to $US80/lb. But it has maintained a long-term price forecast of $US65/lb, with prices expected to be north of $US50/lb by year-end.

“While we expect some near-term volatility, we remain bullish on our outlook for uranium. From a fundamental perspective, the argument to maintain exposure to uranium remains strong,” Canaccord said.

“Demand for nuclear power continues to increase as the global transition to clean energy gains momentum.

“At the same time, primary mine supply sits at a 12-year low, and while uranium prices have recovered significantly to more than $US40/lb, we don't believe this is sufficient to incentivise mine restarts and investments in new mine supply. Accordingly, we believe this cycle still has a long way to go.”

The ASX uranium stocks included in its top picks for 2022 were Paladin (PDN, trading at 69c) and Boss Energy (BOE, trading at $1.98). Its price targets on the pair were $1.05 and $2.88 respectively, suggesting the ASX uranium sector will again be one to watch in 2022.

BOSS:

Just a side note on Boss, which is poised to redevelop its Honeymoon uranium in South Australia’s Curnamona province. Curnamona sits to the east of SA’s big-time copper deposits in the Gawler craton.

A diary entry from February last year noted that Boss said it had completed a comprehensive desktop review of all historical geoscientific information acquired since exploration began on the Honeymoon project in the late 1960s.

“Extracted geophysical data include tenement-scale gravity surveys and prospect-scale ground magnetic surveys within both the eastern and western region tenements,” Boss said. The data pointed to major uranium exploration upside.

But it also yielded coincident gravity/magnetic anomalies that “do not appear to have been drill tested and may indicate potential for iron oxide copper gold (IOCG) type mineralisation, based on proximity and similarity of geological features to Havilah Resources’ (HAV) Kalkaroo and Portia copper/gold deposits (1.09mt copper/3.18m ozs gold)”.

Here we are a year on and the copper price has taken off into record territory, making prime exploration ground in a tier-1 location of greater interest than it already was.

Time will tell if Boss can add a copper/gold exploration leg to its story. Funnily enough, Havilah recently announced plans to IPO the uranium potential of its ground, leaving it to focus on its copper/gold development potential.

An IPO of the copper/gold ground is one possible route for Boss to maintain its “pure” uranium status. But there are others. Again, time will tell which path it goes down with the copper/gold targets.

Having said that, Honeymoon is very much the company’s focus, and the button will be pushed on its development once the next leg in uranium’s uptick comes to pass in response to security-of-supply conscious utilities scrambling to write long-term supply contracts.

GENESIS MINERALS (GMD):

This year is full of expectations for Genesis Minerals (GMD) on both the exploration and corporate development fronts.

The excitement is a function of the pending arrival of former Saracen and Northern Star boss Raleigh Finlayson as managing director following his lead role in last November’s $20.8 million funding package for the Leonora gold explorer.

Genesis has just delivered on the exploration front with the release of impressive results from the Puzzle North discovery at its 1.6m ounce Ulysses project, with the results to be fed into a mineral resource update due later this quarter.

There will be more exploration news as the year unfolds as the November cash injection allows the company to set a cracking pace with the drill bit as it continues to unlock the geology of the broader region.

The missing bit at this stage is what Finlayson has in mind on the corporate development front. The broader Leonora region is alive with opportunities and he didn’t move on from Saracen/Northern Star to sit on his hands.

The group’s now-consolidated shares are trading at $1.66 for a market cap of $418 million. That’s a stretch on the current resource of 1.6M ounces.

But that reflects a premium for the coming resource growth, and the harder-to-price upside from the Finlayson factor in striking M & A and asset deals to fast-track Genesis’ climb up the ranks. 

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