Uranium takes the spotlight as COP26 and the energy crisis collide

A leading fund manager names Boss Energy (ASX: BOE) as his pick of the uranium stocks. Plus, South32’s (ASX: S32) copper deal is a boost for porphyry hunters such as Sunstone Metals (ASX: STM) and Hot Chili (ASX: HCH).

World leaders - most of them, anyway – will soon be heading to Glasgow for the United Nation’s Climate Conference, otherwise known as COP26.

The idea is that there will be commitments to accelerated net zero emission targets to save us all from global warming through decarbonisation and the electrification of everything.

Quite reasonably, there is an expectation that the role of nuclear power in the decarbonised energy mix required to stop global warming needs to be more prominent than in previous climate conferences - that's if the hurried-up zero emissions targets likely to emerge from COP26 are to be taken seriously.

That is certainly the way Guy Keller sees things. Keller is a portfolio manager at Tribeca’s Nuclear Energy Opportunities Fund, with the fund riding the recovery in uranium prices to post a 170% return net of fees for the year-to-date.

“The reality is that the only technology that is currently available to replace coal and gas-fired power as base-load power is nuclear,” Keller told a webinar during the week, hosted by NWR Communications.

Base-load is the important compound word there because nuclear power has upwards of 90% availability compared with 25%-35% for ever-intermittent wind and solar.

Japan, the US, Britain and France have all been saying positive things about nuclear power in the lead up to COP26, and more from them can be expected before the conference is over. So much so that, like lithium before it, flat growth curves for nuclear power are increasingly being replaced with steeper curves to the upside.

That is all supportive of uranium prices which have been on a tear this year anyway, thanks to physical buying by exchange-traded funds, and that to come from the new fund Kazakhstan is working on.

The latest (spot) uranium price of $US47.5/lb is close to a seven-year high, with more ETF buying and the likely COP26 endorsement of nuclear power providing upside potential. The real price kicker will be when power utilities return to the market in a big way to secure long-term supplies.

They must be getting nervous about the ETF’s mass sequestering of uranium. The sequestering is based on the view that prices of more than $US60/lb are required to incentivise the uranium miners to invest in the new production required to meet long-term demand, with or without high-growth scenarios in place.

So, they're interesting times all around for the ASX-listed uranium stocks. Tribeca’s nuclear fund was early to the thematic of decarbonisation and electrification and what it means for uranium producers, developers, and explorers, as that 170% year-to-date return demonstrates.

Pressed on what uranium stock he would invest in if he were limited to just one, Keller nominated Boss Energy (ASX: BOE). It last traded at 29.5c, well up from its 52-week low of 5.8c.

“Looking at what is going to come to market here in Australia, there is only one answer to that, and that is Boss,” Keller said.

Boss is development-ready at its Honeymoon project in South Australia. Honeymoon was a producer in the past but is to be brought back into production at a time of the company’s choosing, and sporting project enhancements.

“So if I am looking for an investment then, that will come to the market in its first cycle, and eventually see some free cash flow, you sort of have to look at this one,” Keller said of Boss.

Having said that, Tribeca recently sold down its Boss stake to just under 5%. It is what active asset managers like Tribeca do when a stock has posted big gains from 52-week lows as Boss has.

Porphyry hunters: STM and HCH

A $US4.60/lb copper price should fire up investors in the copper juniors. And it has, to a degree anyway.

What is of more interest today though is the growing interest in the big-time potential of copper-gold porphyry systems in Latin America being chased by juniors.

It is welcome stuff as the porphyry juniors active in Latin America had been struggling to gain traction compared with their Aussie-focused copper counterparts.

The reason for that was simple enough. This market is not much interested in exploration results from juniors where the assays come back with results of less than 1.5%-2% copper, notwithstanding the average grade of copper produced today globally is less than 0.6%, with low grade but bulk tonnage porphyries providing most of the global supply.

So when the successful juniors report their broad but sub-1% assays this market has tended to look the other way. But as suggested, that is changing.

Copper’s price strength has a lot to do with the change in attitude. In more recent days, South32’s $US2.05 billion acquisition of a 45% stake in the 180,000tpa Sierra Gorda mine in Chile has emerged as another changing factor.

Sierra Gorda was a dud mine when it first got into production in 2014. But the operator who South32 will be joining in the mine, Poland’s KGHM, has sorted the issues out in the last couple of years.

The mine now makes good money now with its operating costs coming in at around $US1.30/lb after by-product metal credits.

Sierra Gorda is doing that from a head grade of 0.48% copper, with the grade due to fall to 0.43% in the medium term, and then to the reserve grade of 0.4% for another 20 years or so.

There seems to be a developing attitude of “it’s good enough for South32 to be buying a “low grade” porphyry in Chile for the long haul,” then there is more to like about the juniors active on the ASX with a shot at the porphyry big time.

Sunstone (ASX: STM) and Hot Chili (ASX: HCH) demonstrate the point. Since the start of the month, Sunstone has risen 186% to 6.6c, and Hot Chili 30% to 4.7c. The copper price has no doubt helped, as too has excellent exploration results pointing to large-scale discoveries.

But there is no doubting the re-look at the stocks post South32’s move on Sierra Gorda is also a factor. Apart from anything else, the South32 deal highlighted just how short the mining majors are of serious growth options in copper.

Why, even BHP and Rio have flagged in recent days that they will no longer restrict their hunt for copper opportunities to Tier 1 locations, saying they must now scout out opportunities in locations where sovereign risk issues are a feature, such is the supply pressure on a metal key to the world’s electrification.

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