Strong uranium contract prices raise questions about sector sell-off

Gold and uranium stocks figured heavily in year-end predictions by pundits on stocks expected to perform strongly in 2025.

The pundits were spot on with regards to gold stocks/gold prices but sadly lacking in their judgement when it came to uranium producers/uranium prices, today’s interest.

The uranium stocks have been pummelled in the year-to date, with leading stocks like Boss (ASX:BOE) and Paladin (ASX:PDN) suffering share price meltdowns of 45% and 47% respectively.

They are down even further from levels seen in the opening months of 2024 when the spot uranium price flirted with $US100/lb.

The spot price has since retreated to the February 2025 average of $US65.03/lb, and lower still to $US63.75/lb (Numerco) in recent trade.

But here’s the rub. While the spot price has let the side down, the term or contract price for uranium has remained at multi-year highs ($US80/lb average in February).

That really does matter as it is the term price that better reflects the long-term fundamentals of the uranium market.

It is a point that the Western world’s biggest producer, Canada’s Cameco, made in its recent investor call for its December quarter earnings.

Cameco president and CEO Tim Gitzel said the spot market is not where utilities go to meet their annual run rate requirements.

“It’s completely discretionary and it’s non-fundamental,’’ he said. “Of the 46 million pounds of uranium that transacted in the spot market last year, only about 15% was bought by utilities.

“As is the case every year, a great deal of the spot activity was churn, traders, brokers and financial players passing around 100,000 pounds five times, which becomes 500,000 pounds of reported volume,” Gitzel said.

“That’s not a reliable source of supply for the more than 175 million pounds a year needed to fuel the global nuclear fleet annually, and that’s not a source of supply that can underpin the long-term operation of a nuclear reactor for 60, or more, years.”

It can be taken from all that that Gitzel reckons that the outlook for nuclear power and nuclear fuel fundamentals is more favourable than it has been for decades.

And given that the term price has remained at a historically high level of $US80/lb (it was $US34/lb three years ago), it has got to be wondered if this year’s sell-off of the uranium stocks has been overdone.

Recognition of the overdone situation looks to have been a factor in ASX uranium stocks rising this week from recent lows.

Gitzel reminded investors that uranium was tight and requirements are growing from the world’s existing nuclear fleet and the 62 reactors under construction.

He said the growth story was not reliant on the “blue-sky” demand from jurisdictions that are only thinking about adding nuclear or from data centres in the tech sector, or from the buildout of small, advanced reactors.

“Those potential developments only add to the positive outlook for nuclear energy, which is already strong,” Gitzel said.

“Based on global fuel requirements, utilities have bought less than 40% of the uranium they need to operate through to 2040. That translates to about 2.1 billion pounds of uranium that is yet to be purchased, and it’s putting an awful lot of pressure on supply in the mid-2030s, a time when several major global primary supply sources are thinning out and the investments in construction of new mines required to replace them have not even started.’’

Tariffs:

Uncertainty caused by President Trump’s tariff warfare has not helped sentiment in the uranium space, something reflected in the spot price weakness where the speculative investor dollars reside.

Uranium and other energy sources are due to have a 10% tariff (border tax) applied from April 2. It is smaller than the 25% tariff Trump plans to hit Canada with across all other imports, for a good reason.

Canada is a major supplier to the US, supplying about 27% (50Mlbs annually) of its requirements for its fleet of 94 operating reactors. And it has little choice but to rely on imports from Canada (and Australia) given it only produces about 1Mlbs currently.

Given past form on messing with tariffs, term contracts for supply to the US are now written with a clause that states the obvious – any tariff is payable by the utility - which means higher costs but nothing too damaging, given nuclear fuel is a small part of the cost base.

There has to be a chance that the Trump administration pulls back on tariffs on uranium. Afterall, its newly formed “National Energy Dominance Committee” has declared the “long-awaited American nuclear renaissance must launch during President Trump’s administration”.

“As global energy demand continues to grow, America must lead the commercialization of affordable and abundant nuclear energy. As such, the Department (of Energy) will work diligently and creatively to enable the rapid deployment and export of next-generation nuclear technology,” it said.

BOSS/PALADIN:

E &P Research (Evans and Partners) recently had a deep dive in to the ASX producers, initiating coverage on Boss and Paladin in the process.

It made the point that it remained tactically cautious on the sector given elevated near-term uranium price expectations and execution risks during project ramp (Honeymoon for Boss and Langer Heinrich for Paladin).

“We expect uranium prices to remain under pressure near-term with our price deck broadly in-line with spot and 15-20% below consensus (which expects a deficit).’’

“However, the medium term outlook looks more attractive driven by a growing recognition of nuclear's role as a reliable, affordable and clean source of baseload power,” E&P said.

It posed the question of whether it was time to buy the dip.

“With spot prices retreating more than 30% in the past 12-months, the question for investors is whether the recent pullback is an opportunity or whether the 'easy money' in the uranium trade has been made (for now),” E & P said in the March 6 report.

“We are sympathetic to the former given the encouraging long-term Western demand growth outlook but remain cognisant of potential near-term macro risk (supply surplus) and equity risk (ramp up's, etc) within our coverage.”

It placed a $3 a share price target on Boss (it was $2.39 at the time of the report). The stock was trading on Thursday at $2.70.

Its price target on Paladin (it was $6.65 on March 6) was $5.70 which compares with Thursday’s $6.83.

“We have a relative preference for Boss over Paladin. We see less operational risks at Honeymoon compared with Langer Heinrich,” E&P said.

“Honeymoon's ramp up appears to be exceeding management's initial expectations with the recent cost update ahead of consensus. This is in contrast to Paladin which has encountered challenges.”

Spartan/brownfield:

The adage that the best place to make a gold discovery is in the shadows of a headframe at an existing/historic operation has been proven again, in spectacular fashion too.

Ramelius’ (ASX:RMS) agreed cash and shares takeover of Spartan (ASX:SPR) for $2.4 billion (fully diluted) is the latest confirming example.

Spartan was a $110m company in June 2022 on the strength of its Dalgaranga project in the Murchison region of WA.

Dalgaranga was in struggle town processing less than 1g/t dirt, prompting Spartan’s newly arrived CEO Simon Lawson to place the operation on care and maintenance in November 2022.

Lawson, a geologist who had earned his stripes in the early days of the Northern Star (ASX:NST) growth trajectory, made the tough C & M decision with a strategy in mind – find high-grade resources close to the 2.5mtpa mill.

It paid off big-time, with high-grade discoveries less than 1km from the mill turning Spartan into a must have for Ramelius, which has its operating base in the Murchison some 65km from Dalgaranga at Mt Magnet.

Not every exploration program has an idled treatment plant lurking in the background. But they can have historic past production or known gold mineralisation that wasn’t followed up in a lower gold price environment.

And here we are with gold at a staggering $A4,800/oz. So what might in a more general sense be described as brownfields exploration like that undertaken by Spartan with incredible excess is very much in fashion.

That’s particularly so for investors dabbling in the exploration sector. Having witnessed the success of Spartan on the brownfields front, they are now more inclined to back a brownfields explorer over a greenfields explorer.

It is a derisking exercise as much as it can be a value creation exercise as Spartan has demonstrated. Junior explorers have noted the change in preference and in a record Aussie gold price market, are acting accordingly.

The shift to a brownfields focus is also being applied to other commodities.

Too many examples in gold and other commodities to list today. But in the gold space, two worth mentioning are Javelin (ASX:JAV, trading at 0.2c) for its two brownfields gold project on either side of Kalgoorlie and Leeuwin (ASX:LM1, trading at 10.5c) for its pickup of the advanced Marda project near Southern Cross.

In copper, there is Firetail (ASX:FTL, trading at 6c) looking to “do a Firefly” (ASX:FFM) at its Skyline copper pick-up in Canada while in uranium, Neil Biddell has added an advanced Queensland project to Greenvale’s (ASX:GRV, trading at 5.9c) portfolio.