Under the Radar Report

Three Reasons Uranium Stocks ASX Are Booming

20 May 2021
Richard Hemming

Uranium stocks ASX are booming, including Paladin Energy (ASX: PDN) that we tipped six weeks ago and is already up 25%. Paladin isn’t the only Australian uranium miner heading north. In this article our editor Richard Hemming gives three reasons behind increasing demand for Australian ASX uranium miners and what this means for ASX investors. 

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Uranium stocks ASX are climbing with demand

Uranium spot prices reacted positively to increased demand from uranium commodity funds and developers in the second half of the March quarter with a 12% price rise from US$27 a pound to US$30.50. This led to a rally in ASX uranium including our favourite Paladin Energy (PDN), as well as Boss Energy (BOE), Bannerman Resources (BMN) and offshore listed uranium stocks such as Cameco Corp (CCJ:NYSE). Subsequently, uranium stock prices slipped to US$29, but quickly recovered to almost US$30.50 by mid-May. We believe this is just the beginning. Smart investors will want to get on board. 

What's driving ASX uranium stocks higher?

Global ASX uranium demand requirements now exceed levels prior to the Fukushima nuclear disaster, 10 years ago. Covid related production curtailments have exerted additional pressure on supply, accelerating the drawdown in inventories. Global uranium production in 2020 was 123m pounds, down almost 20m pounds on 2019 and represents only two thirds of annual reactor demand.

Curtailments include cuts by large uranium producers such as Cameco’s Cigar Lake mine since December 2020 and some operations in Kazakstan. There have also been a number of permanent uranium mines in closing such as the Ranger mine in Australia and the Cominak mine in Niger.

Uranium is structural defict

ASX uranium purchasing by nuclear power utilities accounts for just over half of consumption over the past eight years. The balance of the requirement has come from uranium, some of which includes dismantled warheads, which cumulatively represents 750m pounds. This is a rapidly diminishing stockpile. As we’ve said Covid is a factor, but the bottom line is that even before including this, there is insufficient uranium production for the amount that is consumed.

Long-term contracts from the previous uranium cycle, which ended 10 years ago (Fukushima), are finally expiring. The squeeze is real with substantial uncontracted utility requirements emerging. In its first quarter 2021 Uranium Market Outlook Report, the publisher UxC forecast uncovered demand of around 50m pounds of yellowcake (U3O8) in 2025, 100m pounds by 2030 and 150m by 2035.

Exacerbating the supply balance have been purchases of physical uranium by producers, junior miners and investment funds. In the first quarter of 2021 U308 inventory drawdown for these purchases was over 10m pounds.

We're confident uranium stocks ASX will keep rising

  • Older uranium miner reactors in the US previously scheduled for closure are likely to have life extensions, causing a forecast increase in global nuclear capacity at least in the mid-term, meaning four to five years.
  • China is significantly increasing its nuclear capacity, projected to rise from 50GWe (giga watts electric power) to 70GWe by the end of 2025 under its fourteenth 5-year plan.
  • Nuclear is recognised as a component of green energy, particularly for base load because nuclear power Co2 emissions are very low. While there is popular objection to nuclear as a green fuel, the latest “third generation” reactors are inherently safer and a considerable advance on the previous models.

Nuclear for the masses

The nuclear industry has been developing and improving reactors for more than 50 years. The third generation reactors can be designed for modular construction, with some offsite manufacturing and faster construction. Features include a simpler and more rugged design, which is standardised, making them easier to operate with a lower capital cost. They have higher availability and a longer operating life, typically 60 years and are more fuel efficient.

Moreover, the new technology is being utilised by the big and the small. China’s Five Year Plan to 2025 is centred around developing third generation nuclear capacity. Elsewhere countries and industries that have never used nuclear power before are making use of the smaller new designs of up to 300MWe (mega watts electric power). Typical nuclear power stations have capacities of over 1,000MWe. 

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Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.