Macro Intelligence: is uranium poised for a bull market?

Article written by Nadine Blayney (ausbiz)

Upbeat uranium

It’s been a wild few years for the price of uranium; after decades of low prices, COVID-19 supply disruptions moved the needle in 2020, which was followed by a lull. In 2021, the price rallied again after supply cuts from major producers Cameco and Kazatomprom. The Sprott Physical Uranium Trust also began buying uranium, driving the price to around USD 50 per pound.

The price of uranium took another leg-up in 2022 with the unrest in Kazakhstan, which raised concerns over more than 40% of global uranium supply. That, coupled with the Russian invasion of Ukraine, drove the spot price higher.

After remaining stuck around USD 50 per pound, in the latter half of 2023 expectations for a so-called renaissance for nuclear energy helped propel the uranium price to USD 106 per pound in January 2024.

Since early exuberance this year, the uranium price has once again pulled back on easing supply concerns. A US law freed up USD 2.7 billion for the United States to beef up its domestic uranium fuel industry; however, that same law banned uranium produced in Russia from entering the US. The ban is set to take effect on August 11.

From current spot prices, Citi says uranium (and copper) has the greatest 12-month upside potential of mined commodities.

Uranium prices soar over 80% since 2020, reaching $86.65/lb in 2024

Future price drivers

Despite the pullback in the uranium price since the January highs, many are still calling for a uranium bull market, given the renewed focus on nuclear energy worldwide.

Both the US and Japan committed to triple nuclear capacity by 2050 at COP28. China plans to build as many as 30 nuclear power reactors by 2030. In addition, France, the UK, Belgium, and Japan have extended the life of nuclear reactors. Sweden is allowing more nuclear reactors to be built, and India has plans to boost its nuclear capacity.

Nuclear is also widely touted to be a source for powering the AI revolution. Amazon, for example, bought a nuclear-powered data centre in the United States earlier this year, and Microsoft is pushing for small nuclear reactors (SMRs) to be contained within data centres.

Morgan Stanley estimates the nuclear renaissance could be worth USD 1.5 trillion through 2050 in the form of capital investment in new global nuclear capacity. It points to the highest contracting volumes since 2012 in 2023, as utilities focus on security of supply.

Uranium supply and market response

Uranium supply can rise to meet demand with a large amount of supply sitting idle; high prices have spurred production starts, including ASX-listed Paladin Energy (PDN) at its Langer Heinrich Mine in Namibia and at various sites in the US. Sweden is removing a ban on uranium mining, as is Kyrgyzstan.

While Morgan Stanley says rising supply could keep a lid on prices, further supply challenges and a greater-than-expected impact from the US ban on Russian supplies could offer support. Citi, meantime, expects uranium spot prices to increase in 2024, especially in the aftermath of the ban on nuclear fuel supplies from Russia in the US.

Two-thirds of the world’s uranium production comes from mines in Kazakhstan, Canada, and Australia, with Australia holding the world's largest uranium reserves at 28%. Australia has five operating uranium mines including Rio Tinto's (RIO) Ranger Mine, BHP's (BHP) Olympic Dam, and Boss Energy's (BOE) Honeymoon mine in South Australia. The World Nuclear Association says Australia is a preferred uranium supplier globally, especially to East Asian markets where demand is growing most rapidly.

Top uranium producing countries 2013-2022

Boss Energy achieves milestone at Honeymoon

Last quarter, Boss Energy produced its first drum of uranium at its Honeymoon project while highlighting the uranium grade exceeded its feasibility study estimates. It also talked up plans to accelerate the production rate and increase the mine life at Honeymoon. Morgan Stanley is ‘equal-weight’ on Boss Energy with a USD 4.60 price target.

Boss Energy daily chart

Macquarie bullish on Boss Energy

Macquarie said uranium was a “popular subject” at its recent conference with the supply/demand deficit a key theme, along with AI-driven demand. It points to Boss Energy's Alta Mesa project, which is expected to start production imminently, and its leverage to a uranium price upswing based on uncontracted supply. It has an ‘outperform’ rating on the stock, with a USD 6.00 price target.

Analyst recommendations: mean rating and price target

Paladin well-positioned for the future

Paladin is also a Macquarie preferred pick in the uranium sector, with an ‘outperform’ rating and a USD 6.00 per share price target. Macquarie points to exploration at Paladin’s Langer Heinrich potentially expanding the mine life beyond the current 17 years, which it says will leave Paladin exposed to strong realised prices to 2030. It also points to its strong balance sheet and flagged the potential for future shareholder returns.

Analysts rate Paladin a "Buy"

Paladin daily chart

Citi maintains "Buy" rating

Paladin is also a favourite of Citi, with analysts expecting the momentum in the uranium price to resume in the second half of 2024. It recently reiterated its ‘buy’ rating on the stock with a price target of USD 17.00 per share. That being said, Citi has downgraded Paladin’s EBITDA forecast for FY25 by 14% on a more conservative production ramp-up by the miner.

Analyst recommendations: mean rating and price target