Rising spot uranium prices buoy explorers, developers and producers

Raymond James has raised its target prices on Cameco (TSX: CCO; NYSE: CCJ), Denison Mines (TSX: DML; NYSE-AM: DNN) and NexGen Energy (TSX: NXE) as spot uranium prices have jumped by more than 30% in the last two weeks to US$49.88 per pound.

“Price moves in the spot market like this are not unexpected given the nature of the spot market and in our view, have been supported by [the] recent creation of the Sprott Physical Uranium Trust, an entity designed to provide investors with direct exposure to uranium,” Brian MacArthur, a mining analyst at Raymond James wrote in a research note, adding that Sprott also intends to list in the United States, “potentially resulting in an increase both in trading liquidity and in access to capital.”

MacArthur has raised his 2021 forecast for uranium prices to US$36.65 per lb. from US$34.93 per lb., and his 2022 forecast to US$55 per lb. from US$48 per pound. He has also hiked his long-term forecast to US$60 per lb. from his earlier estimate of US$55 per lb.

The analyst’s price targets for Cameco have moved from $29 per share to $34 per share; Denison Mines from $2.10 per share to $2.40 per share; and NexGen Energy from $7.50 per share to $8.50.  

Sprott launched its uranium trust on July 19, and according to a Bloomberg article on September 16, now holds about 26 million lb. of uranium, “equal to about 14% of the annual consumption from the world’s nuclear reactors.” According to the news agency, the trust has increased its stockpile by 45% over the last four weeks.

In addition to the creation of the Sprott Physical Uranium Trust, other events driving MacArthur’s higher uranium price forecasts and share price targets include uncovered utility demand after 2023 and diminished supply as well as nuclear’s “near zero greenhouse gas emissions,” which make it more attractive in the context of the green energy transition and climate change directives.

“We acknowledge that there is curtailed production that can return to the market at some price, but we believe this requires long-term contracts, and we also note these restarts take time and capital,” he said. “In the meantime, given supply curtailments, we note producers are also now potential buyers in the spot market to cover some contracts, thereby creating additional demand.”