Bad news from Kazakhstan triggered a surge in stock prices of several uranium stocks Friday, with shares of companies such as Caméco (NYSE:CCJ) And Denison Mines (NYSEMKT:DNN) up 9.6% and 9.7% through 1:15 p.m. ET, while Texas-based uranium producer Corpus Christi Uranium energy (NYSEMKT:UEC) beat them both with a gain of 12.1%.
As the Financial Times According to reports this morning, Kazakh uranium mining company Kazatomprom has warned that a lack of supply of sulfuric acid, used in the extraction of uranium metal from uranium ore, will cause it to miss its production targets for the next two years.
A litmus test for uranium demand
Kazatomprom (short for “Kazakh Atomic Industry”) produces approximately 20% of all uranium metal mined worldwide in a given year. Fears that other uranium companies won’t be able to pick up the slack are pushing uranium prices, if not to a record high, then to the highest prices we’ve seen in 16 years. Prices on the uranium spot market have tripled since the start of 2021 and exceeded $100 per pound on Thursday.
Around the world, uranium generally sells at lower prices set in supply contracts. But the spot market gives an indication of where the prices of these supply contracts might be headed – and right now, the direction is this. clearly up.
Supply and demand
The problem, it seems, is not so much the current demand for the metal, which is still not great, with several countries having reduced their use of nuclear power since the Fukushima disaster in Japan in 2011. Rather, the problem is that there is not enough supply. to meet current demand and insufficient supply to meet future demand, as countries begin testing new types of safer small modular reactors to produce nuclear power.
Earlier this week, for example, the U.S. Department of Energy “helped” drive up uranium prices by issuing a tender to uranium companies to supply high-grade low-enriched uranium ( HALEU) intended for use in such reactors, promising up to $500 million in government support to companies that can help. As the DoE observed: “HALEU is not commercially available from U.S.-based suppliers,” and the department wants companies to start producing more of it to secure supply lines in the United States. United.
As a US uranium company, Uranium Energy is thus a direct beneficiary of the government’s plan – and the price hike, which helped return the company to profitability late last year. Canadian companies Denison and Cameco would also likely benefit from their operations in a friendly country and from a U.S. Congressional effort to ban uranium imports from Russia starting in 2028. (Even Kazakh uranium exports are often shipped via Russia.)
The biggest problem with all of these stocks, of course, is that their stock prices have soared in tandem with the rise in the spot price of uranium itself, putting Denison’s stock at a price 34 times higher than that of profits, pushing Cameco’s shares beyond 100 times earnings and pricing uranium energy at a staggering 693 times earnings. We will take a closer look the problem of valuation a little later today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
Why shares of Uranium Energy, Cameco and Denison Mines all jumped today was originally published by The Motley Fool
