The current year, even though it is not yet over, can be considered a successful one in the US stock market. The main S&P 500 index rose by 18.7%. The performance of individual sectors, however, has varied. By far the best performer, with an average return of as much as 78% since the beginning of the year, is the uranium mining and processing companies sector. Let's take a look at the most important players in this area.
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What does the uranium market look like?
The price of uranium has risen by 64% since the beginning of the year, reaching its highest level in 15 years. This increase is mainly caused by a decline in uranium mining and plans to increase uranium consumption by developed countries seeking energy independence. This phenomenon is the result of extending the life of the existing fleet of nuclear reactors and the consideration of building new plants, which in turn is due to the sudden increase in energy prices following Russia's invasion of Ukraine.
Source: Tradingeconomics
According to the World Nuclear Association, there are currently 436 reactors in operation with a total capacity of around 390 GWe. Annually, they require about 74 000 tonnes of uranium oxide concentrate containing about 62 500 tonnes of uranium. Despite the gradual increase in reactor capacity and more efficient operation, demand for nuclear fuel is being held back by increasing fuel efficiency.
Uranium prices fluctuate, but demand for this energy source is relatively predictable. Demand forecasts depend mainly on the installed capacity of reactors and the ability to maintain their high efficiency, the amount of which has remained virtually unchanged since the 2011 Fukushima disaster. According to IEA data, this source accounts for 10% of global energy production.
Source: World Nuclear Association
Currently, the United States boasts the largest number of reactors, with as many as 93, followed by France with 56 reactors, and closing the podium is China with 55 reactors.
According to the World Nuclear Association's 2021 Nuclear Fuels Report, demand for uranium is forecast to increase over the next ten years. A 27% increase in uranium demand is projected by 2030, and a 38% increase is also forecast for the next decade.
Source: Statista
However, the uranium market has seen severe shortages since the 1990s due to fluctuating production levels. In 2022, uranium demand was around 60 000 tonnes, while production was around 49 000 tonnes. This means that countries are forced to draw on their own reserves of this raw material every year. In 2022, Kazakhstan accounted for the largest share of global uranium mining (43% of global supply), followed by Canada (15%) and Namibia (11%). Current market conditions appear to be favourable for further price increases for this commodity in the long term.
Source: World Nuclear Association
This year's robust revenue growth of uranium mining companies has contributed to stock market rises, even surpassing this year's AI boom.
Source: Finviz
Cameco Corp.
One of the biggest players in the uranium mining industry is Canada's Cameco Corporation. Its key business areas include uranium mining, production and sales. In addition, Cameco is involved in various stages of the nuclear fuel cycle, covering its reprocessing and production, including MOX (Mixed Oxide) fuels. The company provides its products and services to nuclear power plants around the world. Cameco is also involved in projects to develop nuclear technology and promote nuclear energy as a source of electricity, giving it a key role in the global nuclear industry. The company currently holds a 12% share of the uranium market.
The increase in uranium prices contributed significantly to the strong revenue growth in Q3 Br, when a 44% year-on-year increase was recorded. Cameco Corp.'s share prices have impressively increased by 98% since the beginning of the year. In terms of the company's financial position, it is worth noting that its debt levels are virtually zero, with a debt-to-equity ratio of 0.16. The company also has a high level of liquidity, expressed in a quick ratio of 3.31, meaning that the company would be able to sustain itself for approximately three years on liquid assets alone.
Source: Conotoxia MT5, CamecoCorp, Weekly
Energy Fuels Inc
The latter company is the US-based Energy Fuels Inc. which specialises in uranium mining, nuclear fuel production, nuclear reprocessing and nuclear waste recycling. It stands out in the market for having the highest return on equity (ROE) of 32% (compared to 4.9% for Cameco Corp.), no debt and a very high level of liquidity (quick ratio of 22.5). This means that in the event of an increase in uranium prices, the company may have the greatest potential to increase earnings from its operations. The increase in uranium prices contributed to the company's revenue growth of as much as 226% year-on-year. It has also seen its share price rise by 35% year-to-date.
Source: Tradingview
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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