Uranium the surprise winner in a sea of red

17th August 2018
Tim Treadgold

Alexander Downer is best known as a former Australian foreign minister, but his latest claim to fame is an ability to back a winner in a downbeat mining sector thanks to a ride hitched on the remarkable revival of uranium.

As a director of London-listed Yellow Cake PLC, Downer has played a modest role in the uranium investment company’s 13 percent share price rise, a move which shines in a sea of falling prices for companies exposed to more politically-correct metals such as copper, nickel, zinc and gold.

Other investors might be wondering why Downer made the shift from his last job as Australian High Commissioner in London to a directorship of a British company buying uranium from the central Asian country of Kazakhstan.

The quick answer is that uranium is emerging from almost 10-years in cold storage as the forces of supply and demand reverse and a downward price trend sparks interest in Australia’s almost forgotten uranium sector.

Quite simply, uranium consumption is starting to outstrip supply by a wide margin – which means stockpiles of the nuclear fuel are running down and the price is doing exactly what it’s supposed to do: go up.

Over the past four months, as other metals have run out of puff, the price of the most commonly-traded form of uranium, U308 (or tri-uranium octoxide), has risen by 27 percent from US$20.50 a pound to US$26 a pound.

Yellow Cake raised US$190 million to buy 8.1 million pounds of U308 (also known as yellowcake – hence the company’s name) from the government of Kazakhstan, and negotiated a deal to buy additional material at the rate of US$100 million worth of uranium every year for the next nine years.

It was a big bet made when the uranium price was showing its first signs of recovery, with the upward trend continuing since Yellow Cake listed its £2 shares in London on July 5 at a first day price of £2.04, followed by a slide to £1.96 late last month, and then an upward move to recent trades at £2.26 – a 13 percent gain for initial subscribers and 15 percent for buyers who picked the bottom three weeks ago.

Yellow Cake’s business plan is the same “buy and hold” strategy which can be found in the Canadian cobalt investment specialist Cobalt 27 – with 27 being cobalt’s atomic number.

Over the past two years Cobalt 27 has amassed a stockpile of 2982 tonnes of the battery metal, valued today at around US$250 million – roughly the same value as Yellow Cake’s uranium pile.

The theory behind both commodity investment stocks is to pick a product with characteristics of rising demand and question marks over future supply. And while cobalt is a clear winner from the battery rush, not many people saw a similar trend developing in uranium seven years after the Fukushima nuclear power plant meltdown in Japan flattened the uranium price.

Times, and commodity markets, change – often when you least expect it, not that the uranium revival is yet being reflected in Australia’s thin field of uranium exploration companies.

Paladin, once a sector leader, with a share price of $7.80 in 2007, has been slowly (very slowly) returning to investor radar screens, rising from a 12-month low of 11c in May to 22c late last month, and last sales this week at 19c.

Other locally-listed U-stocks are also showing signs of life. Bannerman, which slipped 1c lower to 6c in this week’s slump is actually up 50 percent on its May low of 4c. Toro has crept up from 2c in June to 2.7c. Vimy is up from 9c in July to 9.8c and Boss, which reported encouraging drill results two weeks ago from its Honeymoon project in South Australia, is up from 4c in March to latest sales at 7.2c this week – with a gain over the week of 0.2c.

More gains from uranium stocks are expected from analysts such as those at the research firm Banyantree, who pointed out in a note to clients late last week that the latest estimate from the World Nuclear Association is that the world’s nuclear reactors will consume 191 million pounds of uranium this year, some 50 million pounds more than the 141 million pounds which is expected to be produced.

Uranium is not a commodity for every investor, but over the past few weeks it has been one of the few commodities to show a rising trend, which is a pretty good reason to at least ask why – and the answer is as simple as supply and demand.

Elsewhere on the market it wasn’t easy to sniff out stocks gaining ground but moves of interest included:

  • Sheffield Resources, up 2c to 88c, after receiving government environmental approval for its Thunderbird mineral sands mine in the north of WA. At one stage the stock was up 8c, touching a 12-month high of 94c.
  • Mount Gibson Iron was another rare winner in a week of sliding prices, adding 5c to a 12-month high of 50c after reporting a strong profit for the latest financial year, a 3c dividend, and progress on the redevelopment of the high-grade Koolan Island iron ore mine.
  • Millennium Minerals did well to only slip 1c lower to 18c after reporting good progress at its Bartons underground gold mine, with development work reaching the first high-grade ore.
  • Neometals suffered a sell-off after reporting a plan to “de-merge” its Barrambie vanadium project, a move which rubbed 3c off the stock to 2c.
  • Gascoyne Resources also suffered a sell-off after announcing plans to raise $15 million in fresh capital via a share issue priced at 30c. On the market, Gascoyne fell by 6c to 36.
  • Metals X lost more ground this week despite an optimistic report from Macquarie Bank on its Nifty copper project. The latest fall took Metals X down to 53c, off 7c over the week to take the fall since the start of the year to 68c. Macquarie reckons the stock is a buy, tipping a future share price of 95c.
  • Hammer Metals added 0.5c to 2.5c after reporting fresh samples grading up to 36% copper from rock chip sampling at its Perentie project near Mt Isa in Queensland.
  • Ausdrill lost 5c to $1.71 despite reporting a 96% profit improvement and a plan to buy the underground mining specialist Barminco.
  • Syrah Resources continued to lose ground with a 30c fall to $2.36 despite reporting progress in the graphite extraction process at its Balama project in Mozambique.
  • New Century Zinc suffered a similar sell-off despite announcing the start of zinc concentrate production at the born-again zinc mine in Queensland. On the market, New Century lost 8c to $1.12.
  • Image Resources did well to hold its price at 12c after reporting a four-quarter start-up for its Boonanarring mineral sands project in WA, and
  • Bryah Resources also resisted the sell-off, rising in early trade by 2c to 14c before easing to close at 12c after reporting a high-grade manganese find at Brumby Creek in the north-west of WA with five samples grading more than 40% manganese.

 

Image: Nuclear Regulatory Commission, Photostream - Flickr

 

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