Uranium prices hit an 11-year high in April 2022 and remain elevated

The spot uranium oxide price soared as high as US$64.50/lb in April and has been trading in the $45-55 band since June. As recently as January 2020 uranium was trading at just $22/lb.

Much of the rise over the past two years can be attributed to uranium purchases by Sprott Physical Uranium Trust (SPUT). Holdings jumped from 18.2 million pounds in July 2021 to 55.5 million pounds in April 2022. The trust has been adding at a slower rate since April 2022 and holds 59.4 million pounds of uranium oxide as of 18 January 2022. For comparison, global demand is 163 million pounds (74,000 tons) according to the World Nuclear Association , so SPUT was the biggest buyer in the market by far. Even the recent purchase of 100.000 lb in October 2022 appears to have bumped up the spot price.

As far as uranium miners are concerned, the contract price is far more important than the spot price. Nuclear power stations know precisely how much fuel they need years in advance, and lock in long-term contracts. According to the EIA, 81% of uranium for civilian US nuclear reactors was purchased under long-term contracts.

The long-term contract price for uranium reached a 9-year high of $52.00 in November 2022 and maintained that price into December, according to nuclear power generator Cameco.

The long-term outlook for uranium appears strong

As national governments attempt to reduce reliance on fossil fuels, it is becoming increasingly clear that nuclear energy will have to make up some of the difference. Even Greta Thunberg seems to have warmed up to nuclear power.

There are two new streams of demand in the future: restarts of old power stations and new power stations.

New power stations: there are 55 reactors under construction according to The World Nuclear Association , which will increase the current 440 operating reactors by around 10% by 2028 after closures in Germany and Belgium. In China alone, 22 reactors are under construction, 42 reactors are planned and another 158 have been proposed.

Restarts and delays: Japanese Prime Minister announced that it would restart 16 units by summer 2023; Korea has reversed its nuclear phaseout; and at least one nuclear power plant will remain critical in Germany, although whether or not this will be closed as planned is unclear.

A short-term price correction may be coming

The fast run-up in spot prices and subsequent increase in long-term contract prices lit a fire under uranium mining stocks. However, the market could soften in the near term.

First, the purchases by SPUT appear to have slowed down which could lead to spot demand falling short of supply at the current price point.

Second, fuel purchasers could switch some of their purchasing from primary uranium (newly mined) to secondary supply (stockpiles, ex-military weapons-grade uranium blended down, re-enriched depleted uranium tails, and recycled uranium and plutonium from used fuel).

Third, US inventories (excluding SPUT) increased by 10.7 million pounds during 2021 to 141.7 million pounds according to the EIA — the second highest level since 2000. This comes despite the average uranium loaded into US nuclear plants falling from 53.0 to 46.5 million pounds of uranium oxide equivalent over the past ten years.

As the 92 nuclear reactors in the US make up almost 20% of global demand, US inventories can have a significant impact on prices.

Should US uranium suppliers and operators reduce their inventories to take advantage of the current high prices, and this supply not be absorbed by SPUT or elsewhere in the market, uranium prices could fall.

Should uranium spot prices fall, it’s possible that uranium mining company stock prices could also take a hit, at least in the short term.

Top 5 ASX Uranium Stocks to Watch in February 2023

Paladin Energy

Paladin Energy is focused on restarting its 75% owned Langer Heinrich mine in Namibia with resources of 128.1 Mlb (million pounds) of U3O8 (uranium oxide) plus 41.5 Mlb vanadium oxide. These include proved reserves of 73.6 Mlb and probable reserves of 10.2 Mlb. Paladin also has exploration properties in Australia and Canada with resources of 317.5 Mlb U3O8.

The company suspended operations in 2018 due to soft uranium prices and effectively mothballed the mine. This means the company has a mine almost ready to operate. Paladin estimates the cost of restarting the mine at US$118 million and plans to begin production in 1Q2024.

If Paladin’s cost of production is similar to 2018 (US$26/lb) and uranium prices remain at around $50, the mine’s gross profit will be around US$24/lb, or US$120 million per year at 5Mlb annual production. Paladin’s 75% share would be US$90 million.

Keeping in mind that this is gross profit before operating costs, Paladin’s market capitalisation seems relatively high at $2.19 billion (US$1.51 billion). Unless uranium prices climb, it may be difficult to justify this high valuation.

Boss Energy

Boss Energy is a near-term play with production at its Honeymoon Uranium Project in South Australia expected to begin at the end of 2023. Boss estimates the cost of development at A$113 million.

Its current resources of U3O8 are 7.6 Mlb measured, 25.5 Mlb indicated, and 38.5 Mlb inferred for a total of 71.6 Mlb. The value of these resources, if they were mined and ready for export, would be around US$3.5 billion at US$50 per lb.

The company forecasts production at 2.4 Mlb per year, which would be approximately US$180 million top line revenue at US$50/lb and around US$90 million at its estimated cost of production in its 2022 Annual Report of US$25.60.

At this stage, the Honeymoon mine has a planned mining life of 10 years which would be 24Mlb at planned production. This would account for most of the 7.6Mlb measured and 25.5Mlb indicated resources. However, with another 38.5Mlb inferred uranium resources, Boss may be able to extend the mine life well beyond ten years.

Given the apparently similar cashflow and profit characteristics of Boss and Paladin, it would seem logical that the two market capitalisations could converge.

Silex Systems

Silex Systems has two areas of revenue: third generation uranium enrichment for nuclear power and Zero-Spin Silicon for silicon quantum computing.

Through Silex’s 51% ownership of Global Laser Enrichment (GLE), Silex plans to expand in the area of uranium enrichment, which is dominated by Russia.

Uranium enrichment is the process of increasing the concentration of U-235 from 0.7% to around 4%. The process of concentrating the U-235 isotope within largely U-238 has traditionally been through either gas diffusion or centrifuge. GLE expects that laser enrichment will be faster and lower cost.

Importantly, this will reduce dependence on Russia for uranium enrichment. According to the World Nuclear Association, Russia has 46% of enrichment capacity. In 2021 the US depended on Russia for around 28% of its enriched uranium, according to the EIA Uranium Marketing Annual Report.

The world spends US$6 billion a year enriching uranium – not a long way behind the US$8 billion it spends buying it from miners. If GLE can gain 10% of this market with its 7% licensing royalty, it could earn US$42 million per year. Silex’s share would be US$21 million. This would be in addition to direct enriching and potential conversion revenues once it reaches commercialisation in 2030.

Deep Yellow

Deep Yellow is a rapidly growing uranium mining company led by the founders of Palain Energy. Through new discoveries and mergers and acquisitions, the management team has grown Deep Yellow’s market capitalisation from $6 million in 2016 to $546 million in December 2022.

Deep Yellow now has uranium resources of 389 Mlb – similar to Paladin – and reserves of 110 Mlb – significantly higher than Paladin’s 83.6 Mlb.

Deep Yellow has two major pipeline projects – Tumas in Namibia and Mulga Rock in Western Australia.

Tumas has reserves of 68Mlb with planned production of 3Mlb pa. Estimated mining cost is US$28.3/lb including by-product offset. Tumas also has a long mine life, targeted at 25 years. Deep Yellow expects to complete a definitive feasibility study in Q1 2023.

Mulga Rock has reserves of 42Mlb with target production of 3.5Mlb. Deep Yellow is planning to drill 600-900 holes this year and expects to complete its definitive feasibility study in mid-2024.

Deep Yellow appears to have more potential than Paladin and Boss. However, without completing a complete DFS, there’s a higher risk that Deep Yellow won’t be able to achieve production. Investors with higher risk tolerance and a long horizon may see more attraction in Deep Yellow.

Elevate Uranium

Elevate Uranium is an early stage Uranium exploration company with four projects in Namibia, four 100% owned projects in Australia, and three joint venture projects in Australia. Elevates resources total 114.7 Mlb uranium. This is larger thas Boss Energy and is growing rapidly.

• In September and November at its Koppies project in Namibia, the company discovered mineralisation 10 km north east and 6.6 km south of the original discoveries which expand the area of potential mineralisation by a factor of 4-5.
• In October at its Capri project in Namibia, the company announced a 16-km continuous mineralisation following a 284 hold drill program. Further drilling could quantify the resources at Capri and add to Elevates total resources.

Elevate also touts its patented ore beneficiation process, U-pgrade. At its Marenica Project in Namibia, the company claims U-pgrade increases the ore grade from a low 93ppm to around 5,000 ppm.

This has a high potential impact on costs. Elevate estimates that U-pgrade could reduce Capex and Opex by around 50%.

Put simply, Elevate Uranium appears to have relatively more upside and downside potential compared to the other miners on this list. Investors with strong stomachs may enjoy the ride.

How to buy or invest in uranium stocks on the ASX

You can gain exposure to ASX-listed uranium stocks two ways: either through share trading or derivatives trading. Share trading means that you take direct ownership of the stock, meaning you could potentially profit if the share price increases in value or if the company decides to pay a dividend.

By comparison to owning shares outright, derivatives trading – such as CFD trading – allows you to speculate on the price movement of a company’s shares without actually taking ownership of them. CFD trading may prove attractive to some investors for a number of reasons, including the flexibility to trade stocks long and short, the ease of which it allows to hedge, as well as the ability to gain larger exposure to an asset through leverage.

Follow the simple steps below to start investing or trading uranium stocks:

Investing in uranium stocks
1. Create or log in to your share trading account and go to our trading platform
2. Search for the company you wish to invest in
3. Select ‘buy’ in the deal ticket to open your investment position
4. Choose the number of shares you want to buy
5. Confirm your purchase and monitor your investment

Trading uranium shares
1. Create or log in to your trading account and go to our trading platform
2. Decide whether CFD trading is right for you
3. Search for the company you wish to trade
4. Choose your position size and select ‘buy’
5. Confirm your trade and monitor your position