Click here to read the previous U3O8 price update.
Uranium’s price performance has left some investors disappointed in recent years, but overall many sector participants remain optimistic about its prospects.
In the second quarter of the year the outlook for uranium continued to improve, with a number of key developments helping to set the stage for a better future.
Read on to learn what market watchers see ahead for the industry.
U3O8 price update: Price breaches US$30 mark
So far 2021 has been a year of ups and downs for the U3O8 spot price, but by the end of Q2 it was higher compared to where it started the year and where it closed the first quarter.
Uranium opened 2021 near the US$31 per pound level, but sank below US$28 in early March. After picking back up in late March to breach the US$31 level again, uranium sank below US$29 in May. By the end of the second quarter it had more than rebounded to pass US$32.
Even after this year’s small increase, the commodity remains well below the level needed to incentivize new production — the US$50 mark often used to be cited, but now US$60 is becoming more common.
U3O8 price chart, August 2020 to August 2021. Chart via Trading Economics.
The last time uranium was at that level was prior to the Fukushima nuclear disaster in 2011. Prices took a major hit after the accident, and despite strengthening demand and tightening supply they have largely failed to recover. The consensus is that eventually prices will rise, with stocks gaining in tandem — but for years the question has been when exactly that will happen. Now experts are becoming more emphatic that a turnaround really could be in store in the not-too-far-off future.
In an early May note to investors, Red Cloud Securities analyst David Talbot said his firm’s belief is that a “new uranium bull market” is on the way, and he pointed to a slew of factors that support this idea.
Examining the supply side, Talbot said that about 35 percent of global output came offline in 2020. While some of that was due to COVID-19-related shutdowns, there were also some noteworthy permanent mine closures. Ultimately output of uranium came in at just 123 million pounds last year, leaving a gap of 54 million pounds between supply and demand.
Talbot noted that the current supply/demand gap is being filled by secondary production, but said this source is on the decline and in a few years may only supply 15 to 20 million pounds annually.
Looking at demand, analysts at Canaccord Genuity said in a mid-May update that macro policies are helping to build demand for uranium, including China’s 14th Five-Year Plan and more constructive views on uranium in North America and Europe. In their own publication, released at the end of May, Haywood Securities analysts focused on the US side of demand, noting that nuclear power wasn’t forgotten in President Joe Biden’s budget proposal, which recognizes nuclear’s role in clean energy.
Opinions are split on what final pieces need to fall into place to spark a uranium price run, but buying from utilities and Japanese reactor restarts are two factors that are often cited — Talbot mentioned the former in his update, while veteran investor and speculator Rick Rule has discussed the latter.
U3O8 price update: Potential catalysts ahead
The supply and demand dynamics mentioned above give a general idea of the state of the uranium market, but the second quarter brought a couple other noteworthy events, including the continuation of a trend that began in the first three months of the year. Back in March, several uranium companies, including Denison Mines (TSX:DML,NYSEAMERICAN:DNN) and US-based UEC (NYSEAMERICAN:UEC), announced plans to buy physical uranium on the spot market.
Commenting on this development, Justin Huhn, founder and publisher of Uranium Insider, told the Investing News Network (INN) in April that although major miner Cameco (TSX:CCO,NYSE:CCJ) has been buying physical uranium for several years, it’s new to see non-producers enter the market.
“It’s been a pretty big development in the space, and I can only imagine it’s gotten the attention of the utilities,” he said, adding that more buying on the spot market could occur.
Watch the full interview with Huhn above.
Lobo Tiggre, founder and CEO of IndependentSpeculator.com, said at the end of June that he had hoped to see companies’ spot market purchases of physical uranium have more of an effect.
“I wish it had had a bigger impact than it did. The big hope I think when that started was that (the purchases would) soak up all the easy uranium out there … and then you would have much more real negotiations between buyers and sellers, setting more realistic prices — and that could really unleash the spot price,” he told INN in an interview at the end of June.
Tiggre expressed a similar view on the Sprott Physical Uranium Trust (TSX:U.UN), which launched to much fanfare in mid-July after a transaction with Uranium Participation. While he believes it’s positive for the market, he doesn’t see it as a game changer — he noted that while the debut of the trust could ultimately spur more uranium purchases, immediate fireworks are unlikely.
“It should have a beneficial effect, but it could take months, maybe even years to trickle through to really have an effect where it changes materially how much uranium Sprott would be taking off the market.”
Watch the full interview with Tiggre above.
Rule has a more optimistic outlook on the trust’s potential impact on physical buying, although he admitted that his longtime connection to Sprott (TSX:SII,NYSE:SII) likely makes him biased.
“My suspicion is that Sprott will almost by itself be able to tighten up the physical market,” he said. “I believe that the catalyst is in place over the next six months to mop up any surplus uranium in the spot market, which will drive consumers of uranium into the term market, and the strength in the term market will be what allows the fortunes of the larger producers to increase.”
Rule added that Sprott intends to list the trust on the NYSE, and said that will be an important factor in its success since it will provide access to a wider range of investors.
U3O8 price update: Opportunity in stocks
As mentioned, uranium is often described as a “when” not “if” story, and many market participants are keen to get positioned in stocks with potential. So where should they start?
Rule has long been a proponent of uranium, but he cautioned that the juniors have gotten ahead of themselves and are no longer the bargain they once were — some have doubled and tripled in the last few years. His favorite uranium companies at the moment are Kazatomprom (LSE:KAP), China General Nuclear (SZSE:003816) and Cameco.
“I think the juniors are substantially ahead of themselves,” he explained. “This doesn’t mean that they don’t have upside — when the price of uranium crests through US$50 or US$60, which I suspect it will. I’m just suggesting that among the juniors there’s downside as well as upside now.”
Watch the full interview with Rule above.
It’s true that smaller-scale uranium stocks have been on the move — this year’s five top gainers on the TSX and TSXV as of the end of July were all up more than 65 percent since the start of 2021, with the biggest riser up over 230 percent. None of the companies are producing yet.
Tiggre expressed a similar sentiment to Rule, noting that some companies have risen too far.
“The problem is that the stocks have gotten ahead of uranium prices. Uranium prices still are way below where they need to be for these guys to make money, and the stocks are up 100, 200, 300 hundred percent,” he said to INN. “It’s hard to buy when the stocks are up and the commodity isn’t much. So when you see the stocks correct … well that addresses that imbalance, and that’s a source of opportunity.”
It’s worth noting that not all market participants agree. In a Twitter poll conducted by INN, close to 70 percent of respondents said they still see more potential in uranium juniors than in producers. That said, the upshot from at least some experts seems to be that while investors and speculators can certainly still make money in uranium, it will be important to examine closely which stocks have the most room to run.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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