Macro Intelligence: nuclear power's new dawn, uranium market hits 16-year high

Article by Juliette Saly (ausbiz)

Spotlight on uranium

In this week’s edition of IG's Macro Intelligence, we explore the recent surge in uranium prices and its implications for investors.

Going nuclear: the remarkable rise of uranium prices

Uranium, a highly dense metal found in most rocks, is primarily used as fuel in nuclear power plants. The price of uranium has skyrocketed to US$106 per pound, reaching a 16-year high.

This increase is the highest since November 2007, driven by supply concerns and renewed interest in nuclear power. Notably, 22 countries, including the US, UK, Canada, and France, have committed to tripling their nuclear capacity by 2050.

The price of uranium increased to $106

The price surge has also risen amid production risks flagged by the world’s largest miner of the commodity. Kazakhstan’s Kazatomprom has warned it may need to cut its 2024 production due to difficulties with the availability of sulphuric acid needed to produce uranium.

Prices of the yellow metal have been gaining pace since late 2021, after Covid lockdowns hit supplies and created shortages. In the decade prior to the pandemic, prices had been falling after the Fukushima nuclear disaster in 2011 impacted demand.

Uranium 10-year chart

Yellow metal outlook

The substantial return of over 250% on uranium in a short period could prompt profit-taking by investors. However, many analysts, including those at Shaw and Partners, foresee continued growth. They have revised their uranium price forecast to US$150 per pound, citing increasing demand and global governmental support for nuclear energy.

“After a decade of under-investment post-Fukushima, uranium supply is constrained. The fact that Kazatomprom and Cameco are struggling to increase supply indicates that they do not have spare capacity readily available.

There is a great saying in markets that ‘he who panics first, panics best’ and we recommend investors get ahead of potential panic buying,” note the analysts in the report.

Sprott market analysts Paul Wong and Jacob White predict further growth for uranium amid rising geopolitical instability and the increasing likelihood of utility companies avoiding contracts with Russia.

“The 2023 coup in Niger and Kazakhstan’s chronic inability to meet production guidance add to the uncertainty and underscore the importance of supply security,” note the analysts.

Sprott called 2023 a “blockbuster year” for the commodity, and expects price momentum will continue in 2024, boosting shares of uranium miners.

Jay Tatum of Valent Asset Management believes it's challenging to predict the peak of uranium prices but suggests the current surge might be nearing its zenith.

"Uranium is having a moment on the demand side. It is cost-effective. If it isn't green, it is certainly green adjacent,” he told Reuters. “ (in) … five, six, seven years down the line, I don't think it will be making new highs."

Uranium month price, 2023

Stocks to watch

• Boss Energy Limited (BOE)

Australia has the world’s largest uranium exposure and is the world’s fourth largest producer of the commodity.

According to the World Nuclear Organisation, Australia’s known uranium resources account for around one-third of the world’s total. All of Australia’s uranium is exported, with no nuclear power generated in the country.

Shaw and Partners has recommended shareholders have an Overweight position to the uranium sector, citing Boss Energy as a pick. The miner has a market capitalisation of $2.2 billion.

Macquarie has an “Outperform” on the stock while Bell Potter rates the stock a “Speculative Buy” with a price target of $5.69. Shaw and Partners recommends a “Hold”.

Boss Energy daily chart

• Paladin Energy (PDN)

Paladin Energy is headquartered in Perth and holds a 75% stake in the Langer Heinrich mine in Namibia, which is considered to be a significant global source of uranium. It has a market capitalisation of $3.7 billion and is rated “Buy” at Shaw & Partners, and “Outperform” by analysts at Macquarie.

Paladin Energy daily chart

• Deep Yellow (DYL)

Deep Yellow sits in the ASX300 with a market cap of $1.13 billion. Analysts are also positive on this stock, with Bell Potter targeting a 29% return if the company reaches its price target of $1.81.

Other ASX-listed stocks with exposure to the uranium sector include Lotus Resources, Bannermen Energy, Aurora Energy, Elevate Uranium and Peninsula Energy.

Deep Yellow sentiment indicator

• Other stocks

Shaw and Partners has a “Buy” recommendation on several of the stocks including Bannermen, Lotus and Peninsula.

Toronto-listed Cameco is expected to be the world’s second largest uranium producer this year after Kazatomprom. Its share price has outperformed the S&P 500 as uranium prices soar.

Lotus daily chart

Bannermen Energy daily chart

Aurora Energy Metals daily chart

Elevate Uranium daily chart

Peninsula Energy daily chart

Emerging opportunities in uranium ETFs

Uranium ETFs have also been gaining traction, as investors look to add exposure to the sector.

BetaShares Global Uranium ETF (URNM) is up almost 100% since March last year. URNM holds Boss Energy and Paladin Energy, but also has exposure to Cameco.

Global X Uranium ETF (ATOM) holds similar companies in its portfolio and has jumped almost 50% in the past 12 months.

Cameco and S&P 500 chart