Why we like Uranium & Paladin (PDN) is our best pick
Uranium stocks have been in focus this year with many rising 3-fold in anticipation for a strong move in the uranium market. The market has been oversupplied for a number of years however the dynamics are starting to turn here for a number of reasons. The uranium market is very opaque with significant volume dealt through the contract market where buyers go direct to suppliers to secure product.
More than a third of the market is supplied by Kazakhstan’s Kazataprom which has been active in both spot and contract markets, keeping prices low and keeping plenty of other mines out of action. Last year a number of COVID issues at mines around the world saw plenty of supply come offline, even the world’s largest uranium mine, Cigar Lake, has been out of action. Couple that with Kazataprom buying stock in the spot market to fill orders and it created a boom in prices.
This breathed life back into the stock of a number of uranium plays, and despite Cigar Lake ramping up again, the interest is there. On the demand side of the equation, in the near term market commentators talk to a number of utilities running inventories at or below strategic levels. Over the longer term, uranium demand is expected to slowly climb as nuclear power becomes more accepted. With emissions and clean energy targets being more onerous, it’s hard to see a path to meet the numbers without broader adoption of nuclear.
So where do we look to for getting uranium exposure. Paladin (PDN) is MM’s top pick here. Paladin manage the Langer Heinrich mine in Namibia – a mining friendly geography particularly around uranium. The company is well-funded after recently raising ~$220m to redeem the senior notes with the raise well supported. Langer Heinrich is on care and maintenance with a low cost restart, and low operational costs will see it as one of the first to tap the contract market when prices reach a viable level.
