The sentiment around the nuclear energy and uranium mining industries has changed drastically over the past several years and continues to improve. There are three primary trends underpinning this momentum, including decarbonization and clean energy, electrification, and, more recently, energy security and independence.
There have been recent major developments specifically impacting the uranium sector, including the current geopolitical unrest globally, as seen with Russia’s invasion of Ukraine, coupled with growing demand in the backdrop of a strained supply side. In 2023, there will be approximately 140 million pounds of primary mine supply in the backdrop of over 195 million pounds of uranium demand, with a cumulative gap estimated to be over 300 million pounds by 2030. This supply deficit will likely help drive higher uranium prices going forward. There have also been new financial entities, like Yellow Cake and Sprott Physical Uranium Trust, purchasing millions of lbs of uranium recently, putting upward pressure on the price, which will likely continue.
In recent news, the UK moved to classify nuclear as environmentally sustainable, which will likely facilitate inflows of capital into the sector. Additional positive developments on SMR’s and other advanced nuclear techs are also underway.
The M&A activity has been picking up in the last year. Notably, in the Athabasca Basin, UEC acquired UEX for approximately $300,000,000 after a bidding war with Denison. Deal flow usually picks up substantially in the latter part of a uranium bull market, which is still to come.
Meanwhile, the uranium sector as measured by the URA exchange-traded fund is barely holding onto support near 52-week low levels:
URA (Weekly)
Despite the marked improvement in fundamentals for the sector, the URA is currently trading at Q1 2021 levels. A 5% Fed Funds Rate and significant recession risks are certainly helping to weigh on the sector. However, I believe investors with a 12+ month time horizon are being presented with a compelling entry point, just as a new utility contract cycle gets underway; there are 2.3 billion pounds of uranium in uncovered requirements between now and 2040.
Some of our top picks in the uranium sector are:
Cameco (NYSE:CCJ, TSX:CCO) – Cameco is a uranium producer that specializes in the exploration, mining, refining, and marketing of uranium. Cameco is headquartered in Saskatoon, Saskatchewan, and operates uranium mines and mills in Canada, the United States, and Kazakhstan.
Cameco is poised to generate $1.71 per share of earnings in fiscal year 2023 according to analyst estimates, a nearly 75% year/year jump in earnings. A 15x earnings multiple doesn’t seem expensive when one considers Cameco’s earnings power and the strong outlook for the uranium sector.
In addition, Cameco has expanded into the nuclear power plant servicing business through its acquisition of Westinghouse Electric. The acquisition of Westinghouse (in partnership with Brookfield Renewable) gives Cameco tremendous opportunities to benefit from multi-decade growth opportunities in the rollout of next-generation advanced nuclear technology and long-term nuclear energy storage solutions. One of the key areas of potential long-term growth is in modular baseload generation, such as Westinghouse’s eVinci micro-reactor technology. Micro-reactor technology such as eVinci can play a growing role in an increasingly decentralized and decarbonized energy system.
Multiple countries and companies are financing the development of new nuclear technologies including SMR’s (small modular reactors). In fact, Canada has decided to move forward with SMRs with a $970 million investment by the Canadian Infrastructure Bank in the Darlington Plant in Ontario, Canada (first grid-scale reactor).
Investment in nuclear technologies, adoption of SMRs on an international scale, and shifting sentiment in favor of nuclear energy all bode well for Cameco.
NexGen Energy (NYSE:NXE, TSX:NXE) – There is no better jurisdiction for uranium exploration than Saskatchewan, ranked as a top 3 mining jurisdiction globally by the Fraser Institute. Saskatchewan is also home to Cameco’s corporate headquarters and largest mines (Athabasca Basin), as well as the premier development stage uranium asset globally, NexGen Energy’s Rook 1 Project, hosting the Arrow Deposit.
NexGen’s Arrow Deposit boasts a resource totaling more than 600 million pounds U3O8 in all categories, grading an average of more than 3% U3O8.
Arrow is a unique ore body with average grades that have never been seen before across such a large area.
Arrow is the sort of deposit that is highly sought after by major mining companies. NXE’s US$2.4 billion market cap is an example of what kind of valuations are possible when a company delivers unprecedented exploration success in a tier-1 jurisdiction. However, even at today’s valuation NexGen could still deliver considerable upside for shareholders as the company works to further de-risk the Rook 1 Project through a combination of exploration drilling, geophysics, licensing, engineering, and permitting initiatives. A May/June update on the EIS review process could serve as a significant catalyst for NXE shares.
Skyharbour Resources (TSX-V:SYH, OTCQX:SYHBF) – Skyharbour Resources is a high-grade uranium exploration and early-stage development company focused on the Athabasca Basin. Skyharbour also utilizes a prospect generator strategy by bringing in partner companies to acquire ownership interests in some of its secondary projects by funding exploration at these projects and making cash and share payments to Skyharbour over a period of time.
Skyharbour is currently carrying out a multi-staged 10,000 meter fully funded drill program at its co-flagship Russell Lake Project in the Athabasca Basin. Russell Lake is a advanced-stage uranium project that was recently acquired from Rio Tinto and is strategically located between Cameco’s Key Lake Mill and McArthur River Mine. It is also adjoining Denison’s Wheeler River Project to the west (Denison is a large strategic shareholder of SYH) and Skyharbour’s Moore Uranium Project to the east. Between Skyharbour’s drilling at its co-flagship projects of Russell and Moore Lake, coupled with several drill programs funded by partners at other projects, investors will get exposure to 20,000+ meters of combined drilling over the next year.
Earlier this week, Skyharbour announced the staking of eight new properties in the Athabasca Basin, totaling more than 34,000 hectares. The new properties bring Skyharbour’s total land package that it has ownership interest in to 492,074 hectares (1,215,941 acres), across twenty-three properties, representing one of the largest project portfolios in the region. As the Company remains focused at its ongoing 10,000m drill program at the Russell Lake project, these new properties will become a part of Skyharbour’s prospect generator business as the Company will seek strategic partners to advance these assets. These properties have no underlying royalties or encumbrances on them.
Skyharbour CEO Jordan Trimble commented on the latest news:
“We have been actively staking new mineral claims and adding to our substantial uranium project portfolio in the Athabasca Basin. These newly acquired projects are strategically located and are geologically prospective with very little modern exploration having been carried out on them. They complement our more advanced-stage exploration assets including Russell Lake, Moore and South Falcon Point, and provide additional ground to option or joint-venture out to new partner companies as a part of our prospect generator business. Executing on this part of the business, Skyharbour has signed option agreements with seven different partners that total over $34 million in partner-funded exploration expenditures, over $22 million in stock being issued and just under $15 million in cash payments coming into the Company, assuming that all of these partner companies complete the full earn-ins at their respective projects.”
Latest Interview with SYH CEO Jordan Trimble with Resource Digest:
In the last couple months, SYH shares have drifted lower along with much of the uranium exploration sector.
SYH.V (Weekly)
This creates a situation in which SYH shares are sitting in a major long-term support zone at a time when the fundamental outlook for the nuclear energy sector has rarely been better. Furthermore, consolidation in the Athabasca Basin is heating up as evidenced by UEC’s $300 million acquisition of UEX.
In the words of Mr. Trimble “We are building Skyharbour to be a one stop shop for high-grade uranium discovery potential and resource expansion across multiple assets in the Athabasca Basin.”
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