Uranium Stocks Soar On GLJ Upgrade: 33% Upside Seen For Cameco

3) GLJ Research Initial Estimates. Low – France Nuclear End-of-Life Extensions: France’s recent decision to extend the life of 32 nuclear reactors for 10 years might sound like no big deal, but our new ests. suggests this equates to around 14mn lbs of U3O8 per year for 10 years (i.e., a whopping 7.5% of 2020E global demand); this is the equivalent of another large mega-mine nearly as big as Cigar Lake needed (just for France);

4) Supply Destruction 1: Orano, supplier of uranium fuel for France's fleet of 56 Nuclear reactors, 32 of which have just been approved for 10-year life extensions, is just a few days away from permanently closing 1 of its 2 major U3O8 mines in Niger, with no replacement mine coming online; yet more demand destruction.

(Click on image to enlarge)

5) Supply Destruction 2: All Canada's Uranium mines are now offline producing zero lbs U3O8 in 2021; each month Cameco's Cigar mine is down due to COVID19, the world is losing ~1.5mn lbs U3O8 of production; as such, both Cameco and Orano will need to purchase in the open market to fill contracts; our checks suggest Cigar may be down until Fall.

Providing some unique value-added, GLF notes that it has done some recent sector checks, and found that one of the key bear arguments centers on the idea that the commodity (i.e., uranium spot prices) has barely budged (UxC has been first to point this out).

The reason? simply put, there just aren't many utility buyers in the market at the moment, and sellers know higher prices are coming so they are waiting for buyers to come to them (this is what we’re hearing in our checks). Cameco has a stated policy that they will not be the buyer of last resort, so they have stepped out of the market waiting for other buyers to enter before re-entering themselves. Even though Cigar Lake is down, they executed on the majority of their deliveries in 4Q20, their busy quarter, so right now they are being strategically patient rather than jumping in to the market and pushing up prices on their own. They don't have many deliveries to fill this quarter.

As to unleashing Kazakh supply, in the latest Uranium Red Book and Kazatomprom investor handout, they show that the absolute maximum production capacity Kazakhs have is about 73mn lbs/yr, just 15mn above their 2021 Guidance. That is nowhere near enough to fill the growing deficit, no matter how high uranium prices go. Further, in order to achieve that maximum capacity, it will take several years of wellfield development and something in the order of $300-500mn in new capital expenditures. They've been underinvesting for a long time now as it just does not fit their value over volume strategy. The thought is, why invest $500mn to boost production by 15M lbs/yr only to potentially tank the uranium price and kill their profits and dividend? There is no appetite whatsoever to increase production (based on our checks). They would cut it further than the 20% flex-down thru 2022 if they could, but the subsoil agreements they have signed with their JV's only allow a maximum 20% deviation from the production levels in their contracts.

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