Monsters of Rock: Uranium an unsung hero with June rebound

News.com.au

2 days ago

Uranium prices are at levels not seen since November
Sprott's return to the buyer's table has been the latest catalyst for the nuclear fuel
Yellowcake mining equities have surged over the past month
The underrated story of mining equity markets in the past couple weeks has been uranium, with the nuclear energy fuel catching a serious bid after Sprott returned to the buyer's table for yellowcake.
Sprott was the entity that poured a can o' kerosene on the sector back in 2021, stirring a run-up in prices back to investable levels when it formed its physical uranium trust.
The buying was so influential because it was tapping into available pounds on the spot market, a lightly traded sector which nevertheless is the barometer for pricing since utilities will dip into the market when material can be accessed at cheaper rates than more stable long-term contracts.
According to Numerco, spot prices have now hit US$78.5/lb, the highest level since November last year.
It follows Sprott's closing of a US$200 million financing deal in mid-June, an offering that doubled the US$100m it was originally chasing.
That's no coincidence. According to a note earlier this week from Canaccord's Katie Lachapelle, Sprott's dip into the spot market last Friday for 650,000lb was its first since November 19.
Canaccord's figures suggest each 200,000lb Sprott buys moves the needled somewhere between 25-75 US cents per pound. Friday's buy correlated with a US$1.65/lb move.
"Based on these scenarios, we believe that the spot price could increase to between $79 and $84 per pound, in the near term. At $84 per pound, we estimate a NAV of C$28.06, a 13% premium to Friday's close," Lachapelle wrote.
"The Sprott Physical Uranium Trust is currently trading at a 4.23% discount to NAV. We stress that these are high-level assumptions, and that reality could under or overshoot our estimates. With SPUT and other physical traders in the market, we expect more volatility in the coming months."
SPUT is currently trading at US$18.80 a share, up ~3.5% overnight.
Could this flow through to contracts?
Contracting has been slow this year, often attributed to the uncertainty caused by Donald Trump's tariffs.
If they are levied on uranium purchases – energy products are presently excluded – those US utilities locked into deals with overseas producers could suffer big import levies.
Term prices have been trading around US$80/lb for some time now. Could that change?
"We believe that a rising spot price could prompt utilities to re-enter the term market over the summer, a historically quiet period," Lachapelle said.
"In our view, an increase in term demand could lead to higher prices and a long-awaited breakout above $80/lb. Over the last few months, there was limited term contracting. Utilities were somewhat active in the spot market, buying in the low to mid-60s and via carry trades. However, with spot now at US$76.50, we believe the carry trade window has closed."
The turnaround in uranium prices has inspired a strong share price run for equities.
On the ASX, $2bn capped Boss Energy (ASX:BOE) is up 11.2% over the past month, having announced that it hit its first year production target of 850,000lb of drummed U3O8 from the Honeymoon mine in South Australia for FY25 last week.
Its 30% owned Alta Mesa mill in Texas, run by enCore Energy, is also increasing its production rate, hitting 3000lb/day for the week leading up to June 23 (a bit over 1Mlbpa).
The project has a total capacity of 1.5Mlbpa, but was running at just 1942lbpd as recently as April, lifting to 2103lb in May and 2410lb in the first 22 days of June. Its record output came on June 20, when the project delivered 3705lb.
$3.2bn capped Paladin Energy (ASX:PDN) is also up 28.5% over the past month despite announcing a surprise management handover on Wednesday.
MD and CEO Ian Purdy will step aside, with COO Paul Hemburrow to step into the hot seat from September 1 this year.
Bannerman Energy (ASX:BMN) meanwhile completed an $85 million placement at $3.20 per share, giving the developer of the Etango project in Namibia $140m in cash to take it through to a final investment decision on the proposed mine.
"Against the backdrop of improving sector sentiment and nuclear utility activity, we will continue taking measured steps towards realising the Company's opportunity to deliver uranium into a sector pinch-point," exec chair Brandon Munro said.
The Global X Uranium ETF, which tracks key equities, is 21.61% up over the past month.
The ASX 300 Metals and Mining index rose 1.65% over the past week.
Which ASX 300 Resources stocks have impressed and depressed?
Making gains
Liontown Resources (ASX:LTR) (lithium) +13.1%
Chalice Mining (ASX:CHN) (PGEs) +13.2%
WA1 Resources (ASX:WA1) (niobium) +10.5%
Patriot Battery Metals (ASX:PMT) (lithium) +9.4%
Eating losses
Emerald Resources (ASX:EMR) (gold) -12.4%
Ora Banda (ASX:OBM) (gold) -12.4%
Northern Star Resources (ASX:NST) (gold) -7.9%
Catalyst Metals (ASX:CYL) (gold) -6.9%
Gold stocks in the ASX 300 Metals and Mining index came off the boil as tensions between Iran and Israel settled down the safe haven trade for the precious metal.
Lithium stocks were bullish after optimistic reports from analysts, who are becoming more constructive that rising demand for lithium batteries from EVs and energy storage will push the market into undersupply next year.