Weekly Reports | Apr 13 2021
This story features VIMY RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: VMY
As the uranium price rise of recent weeks takes a breather, Cameco plans to restart production at the Cigar Lake mine
-Cameco’s Cigar Lake mine to restart
-Recent research on ASX-listed uranium companies
-The weekly Spot uranium price falls -2.7%
By Mark Woodruff
In a move that surprised some commentators given the pandemic caseload in northern Canada, Cameco has announced it plans to restart production at the Cigar Lake uranium mine in April. In some quarters it’s felt recent tightening in the spot market and the potential for further covid supply disruption may have played a part in the decision.
The Cigar Lake mine is the world’s largest operating uranium mine, producing around 18mlbs per year representing circa 13% of global supply. Production was previously suspended in December 2020, for the second time that year, due to increased risks related to covid. Earlier, Cameco had constrained production simply due to too-low uranium prices, choosing to buy on the spot market to satisfy supply contracts instead.
The announcement noted there is uncertainty regarding an achievable production rate, stating that 2021 guidance will only be updated once production resumes and the company understands the sustainable level.
CEO Tim Gitzel stated the company would continue to purchase material on the market, as needed, to meet its committed deliveries.
Meanwhile Kazatomprom, the world’s largest producer and seller of natural uranium, has also indicated it may purchase material in the spot market this year. The company’s uranium inventory fell -21% to approximately 17.6mlbs last year as production declined.
Global investment bank Canaccord Genuity believes it’s likely spot uranium prices could dip lower as a reaction to the Cigar Lake restart. Spot prices decreased by -4% in the month following the first mine restart in July and increased by around US$1/lb when suspended again in December. With uranium equities pricing in uranium prices well above the prevailing spot price, it’s considered a near-term pullback is likely.
Research on five ASX-listed uranium companies
FNArena has noticed an increased focus on the uranium sector by stockbrokers both in terms of general commentary and the number of company research updates. What follows is a brief summary of five recent updates by brokers for ASX-listed uranium companies.
Vimy Resources ((VMY)) is a Perth-based resource development company whose flagship project is the wholly-owned Mulga Rock project. This is one of Australia’s largest undeveloped uranium resources, notes Morgans.
At 10c per share, Mulga Rock represents the larger part of the broker’s 17c company valuation and target price. The high grade of Angularli should make it a profitable development even at weak prices. Exploration success in the immediate area, (in the world-class Alligator River uranium district of the Northern Territory), would increase this value.
In a recent report, Morgans noted the wholly-owned Mulga Rock project is robust though it requires long-term sales contracts. However, increased requests for expressions of interest from utilities is considered to imply that contract activity should stir in 2021.
Management anticipates that all approvals to commence site works will be in place by June 2021. The US$393m development is scheduled to produce 3.5mlbs per year U308 at an all-in sustaining cost of US$31.22/lb over the 15-year life from existing reserves. Morgans has an Add rating for the company.
Stockbroker Shaw and Partners believes Boss Resources ((BOE)) has the potential to be one of the lowest cost uranium producers in the Western world. The analyst increased the target price on 15 March to 17c from 14c and retained a Buy rating.
The company expects completion of the Honeymoon project’s Enhanced Feasibility Study (EFS) in the June quarter. Management also anticipates improvements in the project’s economics, building on the January 2020 Feasibility Study (FS).
While the uranium market has been depressed for the past decade, stockpiles are depleting, supply has been curtailed and the market is showing signs of life, explains the broker.
Lotus Resources ((LOT)) is an Australian-based minerals exploration and development company. The company’s key asset is majority ownership of the Kayelekera Uranium project located in northern Malawi, Africa, preeviously owned by Paladin Energy ((PDN)).
In a March 30 update, Shaw considered a recent simplification of the the project’s ownership structure is positive. The company has agreed with Kayelekera Resources to exercise its right to acquire an additional 20% in the the project for around 226m Lotus Resources shares.
This will see the company’s interest in Kayelekera increase to 85%, with the balance held by the Government of Malawi. The company is looking to re-start operations of the fully permitted project.
The broker highlights an appealing low upfront capital requirement of circa US$50m for around 2mlb/pa production. The analyst retains a Neutral rating for the company and sets a 16c price target.
Peninsula Energy (PEN) owns the Lance Uranium Projects in Wyoming, USA, which are in transition from an alkaline to a low pH in-situ recovery operation.
The Lance Projects require low upfront capital and can rapidly restart post a Final Investment Decision, according to Shaw. The broker likes the leverage to a uranium sector up-cycle and the company’s direct exposure to US Government initiatives, which are pro-domestic mine development.
On March 30 the broker reduced its target price to 17c from 21c after incorporating slightly reduced plateau production and minor increased costs, following the company’s field demonstration trial update. The broker’s Buy rating was unchanged.
The aim of switching operations from high to low pH is to increase product yields. The key areas of focus for the trial are pattern design and well spacing, rates of acidification and acid consumption, and the strength of oxidants required.
The broker believes the Lance Projects in Wyoming is Net Present Value (NPV) positive at an average forecast weighted uranium price of US$46/lb.
Bannerman Resources ((BMN)) is an exploration and development company. The company’s primary asset is the 95%-owned Etango uranium project in Namibia.
According to stockbroker Euroz Hartleys, the project offers unparalleled leverage to recovering uranium prices and positions the company as a unique takeover candidate.
In a February 16 report, the broker raised its price target to 18c from 12c after an oversubscribed placement has the company fully funded to optimise the development of Etango at an 8mtpa throughput rate.
In early January, the company satisfied selection criteria to be included in the largest uranium sector ETF — the Global X Uranium ETF.
US political news
The Biden-Harris Administration last week submitted to Congress its priorities for fiscal year 2022 discretionary spending. This included a funding request of US$46.1 billion for major investments in key US Department of Energy (DOE) efforts to research, develop and deploy clean energy technologies.
Within the DOE, the discretionary request invests more than $8 billion in technology including advanced nuclear energy technologies, electric vehicles and green hydrogen. This is an increase of at least 27% over 2021 funding.
TradeTech’s Weekly Spot Price Indicator is US$30.25/lb, down -US$0.85 or -2.7% from last week. The spot price again showed a tendency to decline in concert with slowing transaction activity. Only a handful of transactions totaling approximately 800,000lbs U3O8 were reported for the week.
However, the trend of producer buying continues with announcements of notable transactions and significant uranium inventory holdings by a number of current and prospective suppliers, explains TradeTech.
The Weekly Indicator is down -0.5% in 2021, having risen 13% over the last three weeks, led primarily by increased buying among producers.
The average weekly uranium spot price in 2021 is US$29.45/lb, down -US$0.26 from the 2020 average.
TradeTech’s term price indicators are US$33/lb (mid) and US$35/lb (long).
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