Canaccord Genuity Capital Markets Group reported in a comprehensive review on 22 September, 2021 that financial players are clearly accelerating uranium price discovery in a thinly traded spot market, but this would not be occurring if there was not a fundamental supply deficit. The frailties created by over 10 years of under investment in uranium supply coupled with COVID-19 disruptions are not imagined, neither is the importance of base load, emissions free generation in a carbon-constrained world. Canaccord upgraded their long-term uranium price to US$65/lb U3O8 in line with their updated demand and marginal cost of supply forecasts.[Also see (more) for earlier perspective]
Government support has moved from words to action... Growth from non-OECD nations has always been the bedrock of their positive demand outlook, and this view has only strengthened with China starting its first fourth generation reactor and committing to a ~40% expansion in its nuclear fleet by 2025. Adding to this is a more constructive view around North American and European demand in the wake of:
1) clear support for nuclear energy in the "American Jobs Plan"[Also see (more) for earlier perspective];
2) recent financial support (US$700M) for nuclear energy in Illinois to keep its reactors online; and
3) the European Commission announcing that it will potentially include nuclear in the EU's sustainable taxonomy,
.... and Canaccord also upgraded their demand forecasts (again).
The acknowledgement of nuclear's critical role in combating climate change has been slow coming, but has now gained momentum. [Also see (more) for earlier confirming perspective]. This has reduced the risk of accelerated plant closures and continues to drive growth in developing nations. Accordingly, Canaccord has increased our primary demand forecast to 2.8% per year to 2035 (2.6% prior).
Canaccord's forecast excludes any potential positive impact from SMRs' role in secondary demand (i.e., SPUT). Higher long-term prices are still needed to resolve supply deficit. Primary mine supply remains under significant pressure, a situation which has only been compounded by recent COVID-19 disruptions and the shutdown of Ranger in Australia and Cominak in Niger. In early 2021, Canaccord forecasted a similar supply deficit to 2020 (~25 million lb U3O8), before consideration of SPUT's entry into the market. [However U.S. mines are likely to resume exploration and production (more) and (more)]
With continued supply side discipline (Kazakhstan AP -20% cut through 2023), secondary supply falling (SWU at 5-year highs) and inventory levels eroding, Canaccord concluded that higher contract prices are needed to stimulate new supply. This cycle's half-life isn't going to be brief, in their view. The spot price has risen dramatically on the back of physical purchases by the Sprott Physical Uranium Trust, hitting a 12-year high of US$50/lb (+64%) in just four weeks. SPUT recently upsized its ATM to US$1.3 billion (from US$300M), and Canaccord concluded that it is likely that this price momentum continues through year-end with strong demand for continued purchases. [Also see (more) for earlier perspective].
Peak pricing on deck? Canaccord has upgraded its long-term forecast. In this report, They have considered the potential for a near-term uranium price peak to US$80/lb driven by a wave of physical purchases. While difficult to predict the magnitude and length of such a peak, they have updated their price deck for a scenario which considers previous and projected buying from SPUT (up to US$1.3B). Canaccord does acknowledge that there is potential upside to our forecasts (and downside) predicated on multiple factors, including future demand for SPUT as the Trust seeks an NYSE listing in 2022. And while history has shown us there is precedent for the price to potentially surge north of US$100/lb, that same history shows us those pricing levels could be short-lived. Accordingly, their LT price of US$65/lb remains predicated on the marginal cost of production. [Also see (more) for earlier perspective].
Equity implications and top picks. Canaccord has updated their estimates to reflect their revised uranium price deck. Despite recent market sentiment, they continue to prefer companies with a sound balance sheet and positive company specific catalysts. Therefore, Canaccord preferred exposures are NXE-TSX, DML-TSX, PDN-ASX, BOE-ASX, and YCA-AIM.
Read on in detailed report ....
Managed & Built by I2M Consulting, LLC | © 2010-
