Bad news out of Kazakhstan sparked a surge in the share prices of multiple uranium stocks on Friday, with shares of companies such as Cameco (CCJ 0.39%) and Denison Mines (DNN 3.05%) rising 9.6% and 9.7% through 1:15 p.m. ET, while Corpus Christi, Texas-based uranium producer Uranium Energy (UEC 3.75%) beat them both with a 12.1% gain.
As the Financial Times reported this morning, Kazakh uranium mining company Kazatomprom has warned that a lack of supply of sulfuric acid, used in the extraction of uranium metal from uranium ore, will cause it to miss production targets for as much as the next two years.
An acid test for uranium demand
Kazatomprom (short for "Kazakh atomic industry") produces roughly 20% of all uranium metal mined all around the world in a given year. Worries that other uranium companies may not be able to pick up the slack are driving uranium prices to, if not an all-time historical high, then at least the highest prices we've seen in 16 years. Prices on the spot uranium market have tripled since early 2021, and topped $100 per pound on Thursday.
Around the world, uranium ordinarily sells for lower prices set in supply contracts. But the spot market gives an indication of where prices on these supply contracts may be going -- and right now, the direction is sharply up.
Supply and demand
The problem, it seems, isn't so much current demand for the metal, which still isn't great, with multiple countries having curtailed use of nuclear power since Japan's Fukushima disaster in 2011. Rather, the problem is that there's not enough supply to satisfy current demand and not nearly enough supply to satisfy future demand, as nations begin testing new types of safer, small modular reactors for generating nuclear power.
Earlier this week, for example, the U.S. Department of Energy "helped" drive uranium prices higher when it put out a request for proposals from uranium companies to supply high-assay low-enriched uranium (HALEU) for use in such reactors, promising up to $500 million in government support for companies that can help. As the DoE observed: "HALEU is not commercially available from U.S.-based suppliers," and the department wants companies to begin producing more of it to secure supply lines in the U.S.
As a U.S. uranium company, this makes Uranium Energy a direct beneficiary of the government's plan -- and rising prices, which helped return the company to profitability late last year. Canadian companies Denison and Cameco would also likely benefit from their operations in a friendly country, and from a U.S. Congressional effort to ban imports of uranium from Russia beginning in 2028. (Even Kazakh exports of uranium are often shipped via Russia.)
The biggest issue with all of these stocks, of course, is that their share prices have spiked in tandem with the rising spot price of uranium itself, putting Denison shares at a pricey 34 times trailing earnings, lifting Cameco stock past 100 times earnings, and pricing Uranium Energy at a staggering 693 times earnings. We'll take a closer look at the problem with valuation a bit later on today.
