During these last months, a collective flow of positive news has been coming out of the uranium sector. We think that the next quarter will be excellent for the whole uranium stocks.
New composition of the ETF URA
The ETF Global X Uranium (URA) has progressively been changing the composition of the elements in its index. It doesn’t duplicate any more the Solactive Global Uranium Index, but the newer Selective Global Uranium & Nuclear Components Index, which included an additional 19 companies, so give a more or less direct exposure to the nuclear industry, including industrial groups with a nuclear division, diversified miners who produce uranium etc. The index includes twelve direct nuclear fuel production firms, but they make up less than half of the index. The effect is that the index will only slightly geared to a recovery in the price of uranium, making URA a less interesting vehicle to play the reviving nuclear fuel price.
Agreement between Cameco and Yellow Cake
A new company, Yellow Cake PLC listed in London, raising US$ 200 million, and signed a contract with Kazatomprom to purchase uranium directly and store this material in the secure area in Canada operated by Cameco. This is the second listed company with this business model, the first being Uranium Participations, which also buys physical yellowcake.
Restarting nuclear plants in Japan
Kyushu Electric Power has announced the re-start of the fourth reactor at the Genkai generation complex. This will be the 9th Japanese reactor to be returned to service.
Indefinite suspension of the Mc Artur River mines
Cameco announced on the 25th of July the indefinite suspension of mining at it McArthur River mine in the Athabasca district of Alberta. The suspension was originally announced until the month of November. The reason for the indefinite suspension was that the value of contract uranium prices was too low to justify Cameco signing term supply contacts with the nuclear power industry.
Contract pressure on Cameco
As a consequence of the McArthur River suspension, Cameco will buy in supplies on the spot market to meet its contractual commitment with utilities.
Mine suspension at Paladin
Paladin has announced that it will put its Langer Heinrich mine in Namibia on a care and maintenance basis.
IPO confirmed for Kazatomprom
The government of Kazakhstan has confirmed plans to have an IPO for Kazatomprom before the end of 2018. The privatized company will be headed by Jon Luda, a former senior executive at BHP Billiton, with more than 30 years of industry experience in the sector. This announcement suggests that the key goal going forward will be profitability, rather than maximized production, if the two things are not aligned. This could lead to a reduction in marginal or loss making areas, aligning its with market participants like Cameco. Official statistics suggest Kazatomprom has been cutting production by about 6% since 2016.
Spot price
Since hitting the low point in mid-April, 2018, the spot price of uranium has risen 30% to $26.30. If the market breaks through the $30 level, the medium term contract price of uranium should settle between $40-50 a pound.
Marc Diem
Partner, Blue Lakes Advisors
27.08.2018