Growing global appetite for nuclear power fuels renewed uranium fever

It has been said at the start of every year for five years or so that the uranium market was poised for a major breakout. So it might as well be said again: 2023 is shaping up as a breakout year for uranium.

Western world uranium giant, Canada’s Cameco, certainly thinks that is the case for the nuclear fuel.

It said in in its recent profit report that demand for nuclear power, supported by growth across the near, medium and long term, was “driving the best fundamentals we have ever seen for the nuclear fuel market”.

“The growing structural gap has led to supply uncertainty, which was amplified in 2022,” Cameco said.

“The geopolitical events that impacted 2022 accelerated security of supply concerns and coupled with the ongoing focus on the climate crisis, created what we believe are transformative tailwinds for the nuclear power industry from both a demand and supply perspective.”

The standout geopolitical event of 2022 was of course Russia’s invasion of Ukraine. Russia accounts for 14% of global uranium production and 39% of enrichment capacity, and it is a big oil and gas exporter.

The western world, particularly Europe, is rushing to re-sculpt its energy mix without Russian supplies, or at least with a greatly reduced dependence on supplies from the pariah state. Nuclear power/uranium stands to benefit.

As Cameco put it, Russia’s invasion “has set in motion a geopolitical realignment in energy markets that is highlighting the crucial role for nuclear power not just in providing clean energy, but also in providing secure and affordable energy”.

As it is, the uranium price was a strong performer in 2022, rising some 18% while uranium equities put on about 15%. But with the spot uranium price at a little more than $US50/lb, it is not exactly breakout stuff just yet.

But the case for 2023 to be the year it does happen continues to build.

The world’s biggest investor in physical uranium, the $US3.1 billion Sprott Physical Uranium Trust (SPUT must think so as it is to issue another $1.3 billion in units to buy more of the radioactive stuff on top of its current stockpile of some 62 million pounds.

In its January update on the uranium market, SPUT noted the “unprecedented number of announcements for nuclear power plant restarts, life extensions and new builds that are likely to create incremental demand for uranium”.

“Belgium continued its U-turn on nuclear energy by extending the life of two nuclear reactors for 10 years — a tremendous policy change given that Belgium had planned for a complete nuclear phase-out by 2025,” SPUT noted.

“Sweden announced that it is preparing legislation to remove the rule that caps the number of nuclear reactors and prohibits new reactor construction in new locations, a noteworthy U-turn given the number of Swedish reactor closures over the past years.

“Finally, South Korea announced that it downgraded its plans for renewable energy in favour of nuclear energy, increasing its nuclear power goals from 24% to 33% of its total energy mix.”

It might well have added that Japan, the country with more reason than others to turn away from nuclear power after its 2011 Fukushima disaster, is once again embracing nuclear power with the new government ordering up plant restarts and planning for new builds.

ASX URANIUM STOCKS:

Notwithstanding that bullish outlook, the ASX uranium sector had a rough old February. Like the rest of the market, gains made in January were pretty much given back.

Still, there has been a stirring in the sector in recent days.

Industry chatter that utilities are stepping up their activity in the contract or term markets at prices higher than spot in light of was outlined above is helping sentiment.

History shows that uranium equities are highly leveraged to the upside to a rise in the uranium price. And this might just be the year it happens, so positioning to the thematic is understandable.

Boss (ASX:BOE) is one that looks to be benefitting more than most. Apart from owning its own hoard of physical uranium acquired at prices much lower than spot, it is poised to begin production from a restarted Honeymoon project in South Australia before the end of the year.

It has climbed from $2.05 in early January to Thursday’s $2.60. Paladin (ASX:PDN), which plans to restart its Langer Heinrich mine in Namibia in the March quarter next year, is another to benefit, with its shares up from 67.5c in early January to 73c.

Both Honeymoon and Langer Heinrich are robust at uranium prices lower than the current spot price. But because of their pending production, their earnings are also highly leveraged to uranium price increases.

And should 2023 prove to be the breakout year for uranium, the pair will be swept higher anyway on sentiment alone.

The junior explorer space is more crowded than the long winter in uranium that followed Fukushima would have you believe.

But most are not all that active. 92 Energy (ASX:92E) is one that is. It has just kicked off a drilling program at its Gemini uranium discovery in Canada’s home to high-grade uranium deposits – the Athabasca Basin.

It is a high-grade and shallow find which was discovered within a 220m strike length of a 2.8km trend of prospective rocks, with the Athabasca known for discreet but high-grade deposits occurring along a mineralised trend.

It last traded at 37c for a market cap of $35m. That puts it in what its managing director Siobhan Lancaster calls the “investor sweet spot” given it has already established the presence of “significant high-grade mineralisation and it remains open in all directions”.

RED 5 (ASX: RED):

In an ideal world, Red 5 (ASX:RED) would be showing the benefits of a market re-rating for production coming from its new King of the Hills (KOTH) gold mine near Leonora in WA.

But things haven’t quite gone as planned, so the reverse has happened, with the stock being de-rated.

Still, Red5 has just steadied the ship by pulling in $90 million in fresh equity at 13.5c a share and has indicated that KOTH is starting to hit its straps.

Red 5’s production guidance for the second half of FY2023 is 90,000-105,000 at an AISC of $1,750-$1,950/oz through the KOTH mill (including ore from Darlot).

Should that be achieved, Red 5 will be back in re-rating territory in a major way.

It makes for an interesting play in the stock. There were some big names from the funds management world that kicked in big licks of the $90m in support of the company’s “catch-up” strategy at KOTH.

Surely they know what they are doing? Having said that, Red last traded at 13c.

ST BARBARA (ASX: SBM):

Talking about Leonora, the region has long been ripe for consolidation to overcome the frustration of being long in resources, but short of treatment capacity.

Red 5 is a player in all that but the first big move was the December hook-up between Leonora stalwart St Barbara (ASX:SBM) and Raleigh Finlayson’s Genesis (ASX:GMD).

It is still some way off from being consummated via a scheme of arrangement.

St Barbara is to offer 2.0338 of its shares for each Genesis, with St Barbara undertaking to get rid of its overseas mines, and Genesis raising $275 million in a placement, conditional on the merger going ahead.

That’s the plan anyway. But there are mumbles out of Perth that the thing could be derailed by the miserable performance of St Barbara’s mainstay mine, the Gwalia mine at Leonora. Operational profit from the old thing plunged from $76m to $12.6 million in the December half.

More to the point has been the chatter that conditions around St Barbara’s debt levels that would let Genesis walk away are now available for Genesis to trigger if it wanted to walk, giving the sad performance of the historic Gwalia.

That’s not to say it will happen, just that the potential is said to be there. If it were to happen, Red 5’s big, expandable and lowest cost KOTH mill becomes all the more important in how the consolidation of the region pans outs.

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