After a break I am back at it again writing about uranium. This week there have been several exciting developments and I will mention a couple of them today. We have had news about possible restarts of idled mines by Paladin and Boss Energy. We had the month end reporting from UxC and TradeTech showing increasing prices in the nuclear fuel cycle. In addition a merger has been announced between Deep Yellow and Vimy Resources. These developments have me very optimistic for the times ahead.
I have tried to get away from following the sector closely every day for the last month. I have done this to try to become more objective and see if the news flow actually is as positive for the uranium sector as people are claiming. A lot of the news flow is noise, but getting back at it, a lot of the recent developments are material improvements and not just part of the hype.
Langer Heinrich and Honeymoon Uranium Mine getting closer to a restart
Late this week we had Paladin Energy announce that they had successfully completed an institutional placement to raise approximately A$200 million. The raise will mainly be used to restart their Langer Heinrich Mine.
A formal restart project launch is expected in July 2022. The commencement of early works activities will commence immediately. The Company is targeting commercial uranium production from Langer Heinrich in CY2024 4/4
I have seen comments that their market capitalization today is equal to what they can expect from producing and selling their supply at $60/lb. One counter argument to this is that the financing for A$200 has been done with bigger funds and institutions that demand returns on their investment with the company. That means demanding that Paladin be smart with their contracting. They have agreed to fund the company on a better outlook and strategy than contracting out the mine at $60/lb.
Boss Energy is also set for a final investment decision on their Honeymoon Uranium Mine. They completed a Front-end engineering study that found costs, technical performance and financial returns to be in line with their 2021 feasibility study forecasts. A formal announcement of a mine restart is therefore likely not that far away.
My take is that Paladin and Boss are not moving their projects along without them seeing increased interest from utilities. Both companies have talked about being approached by utilities to start up production earlier. These moves are only made when they are confident that we will see sustainable higher prices in the future.
Things are moving along in the fuel cycle
Retail investors can at times be too focused on the spot market. We should however not forget about other parts of the fuel cycle. I have to credit John Quakes (@quakes99) for sharing these figures with the changes in price month over month from UxC and TradeTech. (Both companies provide information to the nuclear sector about uranium prices and more).
No doubt, a lot of the movement in the rest of the fuel cycle is because the situation with Russia. According to WNA, Russia provides about 35% of the enriched uranium globally. Possible sanctions are making fuel buyers looking for other suppliers. John Quakes has also shared this picture to show where in the fuel cycle we find U308, conversion, UF6 and enrichment.
If you see the spot price move down US$0.50lb in the future, it is good to not lose sight of the rest of the cycle. This development is clearly telling us that there is an increased focus on security of supply for the nuclear utilities.
Merger between Vimy Resources and Deep Yellow
John Borshoff from Deep Yellow has on several occasions said that not every uranium developer has a team that can build (or run) a mine. There is not enough know-how in the sector for every company being able to bring a project into production.
We might have seen an example of this with the merger of Vimy Resources and Deep Yellow. If Vimy was capable of building the Mulga Rock Mine by themselves they would not have agreed to the merger with Deep Yellow that easily. Based on their feasibility study, Vimy Resources is one of the more leveraged companies in the sector on a discounted cash flow basis from their projections. Still, the feasibility study is made with the assumption that they will get into production. A lot easier said than done.
You don’t necessarily have to build the mine yourself to add value to a project. If you have done a great job by derisking the property, you can see great valuations on the asset alone, without getting into production during a buyout from a producer or competitor.
The new merged company is very exciting in terms of the size of their combined resources. With the correct strategy for getting into production the new company has potential to become one of the winners in this bull market.
Conclusion
After a lot of turbulence in the start of 2022 it looks like most of the news coming out at the moment is positive for the sector long term. With Paladin and Boss Energy getting closer to restarting their mines there is a noticeable optimism for the future in the sector. I am not going to speculate on timeframes and price targets for the spot price, but from what we have been seeing the last year my view is that we are probably going to see a move sooner rather than later. The peak price of uranium will also most likely be a lot higher than what you could hope for when I entered the trade in 2019.
To end this post I just want to remind myself and others that anything can happen. Do not invest more than you can afford to lose.
