Market analysis: Could uranium stocks rise again?

Autor: Financial Market
Timp de citit: 3 minute

Uranium is the primary fuel ingredient in nuclear power plants. One gram of enriched uranium provides energy comparable to three tons of lignite, and nuclear power plants leave no harmful carbon footprint.

Thanks to state-of-the-art safeguards, they have also become some of the world’s best protected and monitored facilities. Will the global energy crisis drive uranium prices upward, causing wild volatility in mining company valuations?

First of all, analysts at Bank of America forecast a rise in uranium prices to $70 per pound in 2023 from the current $48. The bank cited supply problems and growing support for nuclear power as the main reasons for the price increase.

The reopening of nuclear power plants in the face of the energy crisis is also being considered by Germany, which until recently was hostile to nuclear power.

The BofA report finds increasing activity by financial market participants buying uranium, which in the past has translated into an increase in its price.

According to analysts, the real, direct catalysts for the bull market could be the loss of supply from Russia, which could decisively have an effect on rising uranium ore prices and the extension of the life of the powerful Diablo Canyon nuclear power plant, in California.

The plant, which accounts for 10% of US energy production, was scheduled to close by 2024, but in light of the energy crisis, a shutdown seems unlikely, as indicated by California Mayor Gavin Newsom, among others.

Assuming that a pound is close to 450 grams, the price of $70 for such an amount of raw ore (1 pound of pure, enriched uranium equals 450 MW of energy) still seems very low compared to natural gas or coal, which are unlikely to match in efficiency.

Of course, one pound of commercially available uranium ore does not refer to enriched uranium, which has to be extracted from it and turned into fuel and its percentage of content in 1 pound of uranium ore depends on the purity of the deposit.

In 2021, imports from Russia and Kazakhstan accounted for 49% of total supplies (22.9 million pounds of uranium), but analysts point out that amid the Washington-Moscow crisis, there is a growing likelihood of diversification of supply sources from allied countries like Australia, Canada and the United States, which continue to identify indigenous sources.

Additionally, Bank of America has excluded Diablo Canyon from its crude demand forecasts, an extension of its operation could raise demand by up to 1.2 million pounds in 2025.

At the same time uranium boom scenario similar to the 2003-2007 period when the price per pound rose from $10 to $140 does not seem likely to analysts due to wider access to the resource, reserves at power plants and improving supply chains.

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Uranium Energy Corp (UEC.US) remains the largest producer and forms the largest diversified uranium group in the United States making the company well positioned for a supply crisis.

The company is completing the acquisition of UEX Corp. With the UEX deal, the UEC group has taken possession of all shares in UEX Corporation, the acquisition was approved by the British Columbia Supreme Court.

The company has thus acquired a significant stake in the projects, Athabasca Basin, in the uranium-bearing area of Saskatchewan, Canada where it will partner with Cameco, Denison Mines and Orano.

Previously for cash, the company completed the largest acquisition in the history of U.S. uranium producers, Uranium One Americas which doubled its uranium ore processing capacity of obtaining raw material by the efficient in situ ISR method and the size of its uranium reserves.

The company has no debt, declares a strong cash position of $180 million in cash and accumulated uranium ore purchased at low prices.

CEO Amir Adnani pointed to the company’s growing commitment to the trends of decarbonization and energy transition in the US. In addition, commenting on the UEX acquisition, he stressed the growing trend of securing supplies among Western energy companies and the increasing role of supplies from uranium projects located in secure jurisdictions.

Uranium Energy Corp has two production-ready in situ recovery mining (ISR) sites in the states of Texas and Wyoming, which include the fully licensed and operating Hobson and Irigaray sites. The company also has seven U.S. uranium ISR projects for which all major permits have already been obtained.

Uranium Energy Corp (UEC.US) share price chart, W1 interval. Sources: xStation 5

The price of UEC stock has been moving in an uptrend since the March 2020 bottom, the trend line is respected and the bulls manage to lift the price every time the sellers return to the market.

The price is drawing higher and higher lows, looking at today’s valuation we can assume that if the trend is maintained in the autumn period we may see a rebound in the company’s shares.

If declines are halted in the vicinity of $3 per share, bulls can expect an attempt to bring the valuation down to the vicinity of $2 , where there is key support – the 200-session moving average and 71.6 Fibonacci retracement.

The main risk for the company remains the lack of raw material supply problems and a possible global drop in sentiment around nuclear power.

Nuclear power plants are still seen as places that potentially breed danger in the face of potential digital, hybrid and kinetic enemy attacks, as confirmed by the situation of the Zaporizhzhya Nuclear Power Plant, in Ukraine.