Commodities: Uranium
PDN +6.86%: The Uranium sector lit up today following news that Cameco (CCJ US) is having some production issues which is expected to impact its 2023 production forecast. It now expects to produce up to 16.3m pounds of uranium concentrate at the Cigar Lake mine this year which is below its previous forecast of 18m pounds.
Kazatomprom is the world’s largest producer of uranium (about 22% of global supply) and they released 1H23 results on Friday. We recently bought Cameco (CCJ US) in the International Equities Portfolio and own Paladin (PDN) in both the Emerging Companies & Flagship Growth Portfolios, so it’s important to keep across what the largest player in the global Uranium sector is doing/saying. While revenue was up 25%, earnings increased 33% driven a 6% increase in sales and a 16% increase in realised price i.e. the trends are positive.
We believe the uranium sector is entering the next phase of its recovery after the major downturn post-Fukushima back in 2011. There’s been a distinct lack of investment in new mines over the past 12 years which has resulted in a structurally undersupplied market with the subsequent drawdown of inventories leading to a meaningful commodity price recovery.
The Canadian domiciled miner has two key divisions, namely Uranium which is all about mining and selling of Uranium which accounts for ~70% of sales and Fuel Services which handles the refining, conversion and fabrication of Uranium concentrate, for themselves and others, which accounts for the balance.
It’s not a popular subject in Australia but it appears an impossible path for the world to reach its emissions targets without embracing nuclear power. Elsewhere many countries including the US, Japan and China are looking to nuclear power but the world has de-stocked to the point of making uranium an extremely rare and in-demand commodity, it takes a long time to start or reopen such mines – we believe nuclear has a huge role to play in achieving decarbonisation goals with most of the globe agreeing with us, more nuclear power facilities are now under construction than at any time in the last 50-years!
Uranium miner PDN has been extremely volatile this week, initially plunging -24% on news out of Namibia before recovering well over half of the initial drop. PDN fell to 18-month lows this week, the ‘flash crash’ followed comments from the Namibian Energy minster that flagged potential ownership stakes in resources companies.
The company owns 75% of the Langer Heinrich mine in Namibia that had been care and maintenance for a number of years, however works for a restart are now ~50% complete with first production expected next year. While other mines will come online earlier, Paladin will be the most meaningful given its low cost of production (~$US30/lb) and scale (peak production ~6Mlb/yr). They are well-funded and construction is on time and on budget with further upside in exploration assets in Australia & Canada.
– Paladin is our preferred pick of the ASX uranium stocks
