Uranium – Boom and Bust, Or New Trend?
Note the date of this article - 29 September 2023 - it is a topical article, prices and numbers will change.
Uranium is the talk of the town at the moment, with multiple stocks outperforming in a falling market. The commodity price is up 40% this year and now at a 12-year high. Paladin Energy, which Marcus once bought at 1.6c and sold at 3.2c, before it went to $10 (he had 1m shares), is off again, up 47% this year, along with Boss Energy (+100%) and Deep Yellow Limited (+63%).
Why the significant gains? While scientists, climate activists, and politicians have been advising for years about nuclear's crucial role in the coming energy transition, decarbonisation, and energy security, this has failed to materialise into concrete action. Until last year. Last year it all changed, and many countries who were formally opposed to Nuclear Power publicly reversed their stances, led by Finland, which generates a third of its electricity from nuclear. Belgium, Spain and Sweden followed suit, and all have now have
recategorised nuclear power as a form of sustainable energy.
Examples of it gaining momentum around the world include world leader in nuclear power, France (two-thirds of its electricity from nuclear), building the UK’s biggest 3200MW Nuclear Plant in the south-west of England. Support for nuclear power in the USA has also recently reached a 10-yr high, with bipartisan political support. The US is set to benefit from the Inflation Reduction Act signed last year. As of May 2023,
there are 59 new reactors under construction.
These political breakthroughs have come at a time when disruptions to some of the world's biggest producing mines (Cigar Lake in Canada and French group Orano Niger mine), along with a coup in Mali, have caused global supply shortages. A supply deficit of ~40Mlb p.a is now estimated to last until 2025, while heavyweights India, China and Russia have also all increased demand in the past year. The World Nuclear Association has predicted demand for uranium to rise 28% by 2030, equating to a 4% p.a. - its a slow process building nuclear power stations. This supply deficit is not surprising as even a small pick up in demand upsets the balance, global supplies have been constrained for years thanks to low prices, low investment in new mines and geopolitical uncertainties.
The top uranium producing countries are as follows:
| Country |
% Uranium Produced |
| Kazakhstan |
43 |
| Canada |
15 |
| Namibia |
11 |
| Australia |
9 |
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Australia is well capitalised to benefit from future growth in the sector with the largest identifiable reserves in the world (28%), more than Kazakhstan and Canada combined.
Several companies remain ready to take advantage of the recent price increases. The following are the main ASX exposures to uranium with their market cap, past and future revenue estimates, and price movements:
| Code |
Market Cap ('000) |
FY-1 $('000) |
FY0 $('000) |
FY1 $('000) |
FY2 $('000) |
FY1 Growth |
FY2 Growth |
4 Week % |
52 Week % |
| PDN |
3220 |
5 |
0 |
78 |
327 |
0% |
318% |
27.8 |
46.9 |
| BOE |
1662 |
38 |
3 |
80 |
187 |
0% |
135% |
35.7 |
100.4 |
| DYL |
978 |
0 |
1 |
1 |
1 |
0% |
0% |
45.8 |
63.3 |
| ERA |
753 |
0 |
0 |
0 |
0 |
0% |
0% |
-15.0 |
-33.8 |
| SLX |
795 |
4 |
4 |
4 |
4 |
6% |
0% |
5.3 |
12.0 |
| BMN |
426 |
0 |
0 |
0 |
0 |
0% |
0% |
44.4 |
57.2 |
| LOT |
365 |
0 |
0 |
0 |
0 |
0% |
0% |
20.0 |
22.7 |
Company Summaries
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PDN is the largest pure uranium play currently on our market. Unlike the other smaller explorers and developers, it has placed all its eggs into one basket with restarting the Langer Heinrich mine in Namibia. Production is expected to commence on budget in the first quarter of next year, with a 17-year reserve life and an estimated annual peak production of ~4% global supply (impressive). The mine has a proven track record as it previously produced 43Mlb U
3O
8 over a 10-yr life. It was shut-down in 2018 due to low uranium prices. The company also owns a large portfolio of uranium explorers, including an advanced exploration contract in Canada.
A primary offtake agreement for the life of the mine has been signed with CNNC, a leading Chinese nuclear utility, in addition to further agreements with five industry-leading counterparties in the USA and EU.
These contracts have secured almost half of the production until 2030, with only 20% of that volume subject to base prices (i.e. the other 80% can benefit from price rises should they occur).
In August, the company reported a net loss after tax of US$27M, 38% lower than the previous FY and cash of US$127m. The big enticer with this one is the estimated revenue growth over the next two financial years,
$78m next FY and $327m the following. If that takes place, we would happily bet the share price won’t be staying down at $1. On this basis, we like PDN a lot, and are going to
add it to the long-term growth portfolio next week.
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BOE boasts the only 100% Australian mining portfolio of any stocks in this review. Similar to PDN, it is focusing all its resources on a singular mine, the Honeymoon Project in South Australia. The company is on track to commence
first production late this year. It therefore has impressive short-term revenue estimates of $70m next year, $187m in FY2 and $250m in FY3.0
Boss released its annual results in September, stating it was in a strong financial position with no debt, cash of $89m, and holds a 1.25 million-pound uranium stockpile valued at $118m, which it paid ~ $50m for in early 2021. With a current PE of 87, it is far from cheap, however this is expected to drop down to 16 over the next three years as production ramps up. The share price has had a huge run this year, up almost 100%, but the estimates, story, and fundamentals are enough to excite us into suggesting a buy on any weakness.
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DYL is an advanced uranium exploration company in pre-development phase. Its goal is to deliver 10+Mlb annually across a portfolio comprising two projects in Australia, and two in Namibia. The Namibian mines are situated in a jurisdiction with a long history of safety and effectively developing and regulating its considerable uranium deposits. Definitive feasibility study (DFS) was completed earlier this year for the flagship Tumas Project. The results indicate an extremely low discovery cost of 11c/lb, with a production target of 3.6Mlb p.a set. Total Namibian resources are inferred to be 103Mlb of U
3O
8.
Through a merger with Vimy Resources last August, the company acquired rights to the Mulga Rock Project in WA and Alligator River Project in the NT. Mulga Rock is stated as one of Australia’s largest undeveloped uranium resources, and is the only one of four mines in WA to receive State Ministerial approval. A production target of 3.5Mlb p.a is set. Total Australian resources are inferred to be 71Mlb of U
3O
8.
The company appointed John Borshoff, founder of Paladin, as CEO in 2016. It has cash of $40.8m with anticipated inflow of funds of ~$8m in Q1 & Q2 FY2024. No dividend has been paid since the end of the previous FY and is not recommended for the current year. Net loss after income tax for the FY is $10m (up from $7m) with net assets of $374m.
DYL has an encouraging pipeline of projects with a diversified dual-country portfolio. The CEO has skin in the game with $19m worth of company shares. No start date for production is provided in the annual report, therefore patience is required. Long-term hold for growth is the call.
From the below chart, you can see the correlation between the uranium price and PDN, BOE, and DYL. All three stocks were in a multi-month downtrend prior to the recent bounce in commodity price.
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ERA: It’s hard to find anything to like about ERA. It ceased mining operations at the Ranger Mine in 2012, and continued to process the ore until January 2021. While it holds a valid lease for the Jabiluka Reserve, one of Australia’s best uranium reserves (~$90m value), it has stated it will not commence any mining operations without traditional owner approval. This appears very unlikely with even
majority shareholder RIO writing the entire resource off in February this year. No revenue in the past few years, and none expected for the next few. Total rehabilitation costs for the ranger mine is estimated at $2bn which will be likely passed onto RIO shareholders. Avoid.
SLX: Not your usual uranium play, SLX is a technology company that works on uranium enrichment, and is the only stock on the list with a negative return this year. It is not correlated to the commodity price. The company works on separation of Isotopes by Laser EXcitation (SILEX) laser enrichment technology for uranium production and enrichment, but also Silicon enrichment for quantum computing.
The company does have revenue, $9m last FY before estimates have it dropping to $4.4m for the next two years. No dividend though, so you would be relying on growth. A bit more of a deeper dive into the technology would be recommended before purchase. We may do a full stock take at some stage if we think it has potential, otherwise remains speculative.
BMN & LOT: Both on the smaller side with market caps <$500m. BMN is in development phase for its Etango Mine in Namibia, with an impressive endowment of ~207 Mlbs of U
3O
8. The mine is somewhat derisked with DFS complete, environmental permits approved, and extensive drilling completed. LOT is also in the development phase for its mine named Kayelekera Project. Differing from the others however, it is situated in Malawi. The company also recently acquired A-CAP (ASX:ACB) which has the flagship Letlhakane Uranium Project in Botswana (one of the world's top 10 undeveloped uranium resources).
Neither are expected to enter production for another few years. LOT would be the pick looking at timeline, alone with a forecasted revenue of $84m in three years according to Reuters. Similar to DYL, patience is required, but the current trend is your friend. As long as the uranium price continues to rise, both are likely to continue moving up.
Brokers
Three brokers cover PDN with an average target price 10% above current trading. All three expect demand to outweigh supply, and see the company well positioned to benefit from elevated prices when production of the Langer Heinrich Mine restarts. Bell Potter recently upped their TP from $1.12 to $1.31 and changed their recommendation from Buy to Speculative Hold (whatever that means).
Three brokers cover BOE with an average price 11.5% below current trading, this comes as Bell Potter recently upped their TP significantly from $3.90 to $5.53. They are also the only broker covering DYL with an average price 41% above current trading. No brokers cover ERA. Shaw and Partners are the only brokers to cover SLX, BMN, and LOT (74%, 12%, and 96% target prices above current trading). As Marcus says, when there is only one broker covering a small stock, feel free to read the research, but take the TP’s with a grain of salt.
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In addition to single holdings, two main uranium EFT’s exist on the ASX – ATOM and URNM. ATOM started trading just this year and is so far up 47%. URNM has been around a little longer with inception last June, and is up 52% this year. The following table summarises their top holdings:
| ATOM |
Weight |
Country Allocation |
URNM |
Weight |
Country Allocation |
| Cameco Corp |
24% |
55% Canada |
Cameco Corp |
15% |
38% Canada |
| Sprott Physical Uranium Trust |
10% |
13% Australia |
Nac Kazatomprom |
15% |
16% Australia |
| Nac Kazatomprom |
6% |
8% South Korea |
Sprott Physical Uranium Trust |
13% |
13% Kazakhstan |
| Nexgen Energy |
6% |
7% USA |
PDN |
5% |
11% USA |
ATOM’s holdings are involved in uranium mining and production, including extraction, refining, exploration, or manufacturing of equipment for the uranium and nuclear industries. Cameco Corp is the largest allocation in both ETF’s, which is a Canadian uranium-producing giant that owns the world's largest uranium mine Cigar Lake. The revenue of Cameco is in the billions, with much less earnings growth than some of the single holdings on the ASX, but much more consistent revenue and likely reliable as they have been in continuous production since 2014. The next significant holding is the Kazakhstan-based NAK Kazatomprom. This company is another heavyweight, with at least 85% of its revenue gained from uranium mining and a diversified clientele. 27% of revenue is generated from China, 16% from Canada, 15% from the UK, and 11% from the USA.
In Summary
This is a risky sector and is more suited to traders than investors. It's not set and forget. It's "run with it whilst it's running". It needs to be watched. This is not a "quality" theme. The stocks are volatile and already contain more sentiment than value. PDN and BOE are the best options for those seeking less volatility than the smaller cap explorers. For those wanting more return and higher risk, BMN and LOT both have potential, with their projects looking promising. Namibia looks to have relatively low geopolitical risk compared to other African nations, and most companies stated in their reports that while political events remain a risk, they will be closely monitored. Despite this, for those seeking a safer ‘Australian Only’ play, BOE is your stock, with DYL second.
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