We’re bullish on Uranium over the medium term, and while we own Paladin (PDN) across two portfolios, we sold Cameco from the International Equities Portfolio in January at $US50.13 booking a solid 38% profit at the time, but we failed to buy the pullback on concern around the volume of pounds they had contracted at lower prices (forcing spot purchases) – we now think this concern is overblown.
Ultimately, we see long-term uranium pricing trending upwards as a result of supply deficits, lengthy development timeframes, growing policy support and geopolitical uncertainties i.e. Russia, noting that half of the global production occurs in Kazakhstan, which is all shipped through Russia.
At a Uranium event last week (more on that can be read here), TradeTech, an independent provider of uranium pricing and nuclear fuel information, forecast demand to grow to 250mlb annually by 2040 from 180mlb today, driven by US, Europe, China, Japan and South Korea. As it stands today, the global market is short ~40mlb which will grow to 65mlb by 2036, with only modest supply growth.
Most of the Uranium sold is via the term market, with buyers signing 3-15 year term contracts with producers selling directly to utilities at a higher price than the spot market, to ensure security of supply. You can’t just power down a nuclear plant if you don’t have enough Uranium to fuel it with! 2023 saw the busiest year in over a decade in the term market, and the 2nd busiest since 2001.
- The current spot price US$88/lb is still low vs 1970s nominal price US$170/lb and US$200/lb in 2007, so there is further room to move.
Goldman Sachs initiated coverage on CCJ on Monday with a buy rating at $US55 price target. While we don’t follow broker research in isolation, we do take note of it, and it feeds into our own thinking. Their thesis is essentially that Cameco provides exposure to the entire Uranium/Nuclear fuel value chain in an environment where increased demand and higher prices will lead to ongoing earnings growth/revisions.
- Share prices follow earnings, commodity companies earnings follow the underlying commodity price, and if Uranium goes up, so too does CCJ US.
MM is adding CCJ US back onto our Hitlist
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