A new uranium bull market is coming – sooner than most people think. Our work suggests that the current price environment is unsustainable and that the long-term the price needs to increase 72% to more than US$55/lb U3O8e to stimulate the market enough to bring on new production (Figures 4, 5 and 6). In this report, we evaluate both the supply and demand fundamentals of the market, the real cost to bring on new supply and the price response required to do so. In addition, we evaluate most uranium companies and provide a detailed analysis of stocks that we believe are likely to benefit with the coming bull market.
We have seen this playbook before – several catalysts set to converge in 2020. The market is setting up much like the last bull run in uranium, which was characterized by tightening supply/demand fundamentals ignited by a black swan event (Cigar Lake flooding), which resulted in a parabolic move in uranium equities. In 2019, we have tighter supply/demand outlook and a substantially higher uranium price requirement to bring on enough of the required supply. We believe a Presidential ruling on the Section 232 investigation could act as the catalyst for utilities to resume securing uranium supply. We expect this to positively affect the uranium price, as the long-term nature of the uranium market suggests utilities need to incentivize new supply starting in 2020.
A rising tide floats all boats, but not all boats are created equal. Our view is that the uranium price should more than double over the medium-term and should drive all uranium focused equities higher. However, while we are waiting for the price to increase, we remain selective on names that we recommend. We have ranked the majority of the uranium universe based on six key criteria including: 1) cost profile, 2) exploration upside, 3) financeability, 4) time to production, 5) jurisdiction and 6) relative valuation to similar stage peers (Figure 20).
Providing initial estimates on seven uranium companies. After evaluating the sector, we have elected do a deeper dive on seven names that can provide investors a range of exposure including companies with US assets, higher grades in the Athabasca basin, near-term production, and exploration upside.
