What do you get when you mix a bullish narrative with stubborn share price performance? Uranium stocks.
There's a long list of uranium names that have underperformed in the past twelve months despite higher spot prices and rising nuclear power adoption across China, Japan and South Korea.
Notable losers in the past twelve months include:
Boss Energy (ASX: BOE): -8.2%
Paladin Energy (ASX: PDN): -16.4%
Deep Yellow (ASX: DYL): -19.9%
Still, Citi believes the bullish uranium narrative remains intact and upgraded its outlook on the back of "robust demand".
Citi revised its uranium outlook to "reflect the overwhelming optimism for nuclear energy in the mid-to-long term."
"The outlook for higher demand in the coming years is supported by climate legislation in North America (Inflation Reduction Act), nuclear capacity expansion in Asia, reactor lifetime extensions in Western Europe, and adoption of nuclear energy in the green taxonomies," Citi said in a Commodities Strategy presentation on Monday.
Citi's base case assumes a gradual phaseout of Russian supplies to Western utilities as well as no more premature US reactor closures and additional capacity from Japan, India and China.
Citi notes 2021 production levels fell short of demand by almost 40 million pounds of uranium. The shortfall was covered by existing inventories, often referred to as secondary supplies.
Secondary supply has played a major role in balancing out the nuclear fuel market for the last three decades, according to Citi.
"As inventories will be drawn down by the end of the decade, uranium production would have a much larger role in the uranium markets," the analysts said.
"Idle and near-term projects might be able to fill in a gap, but spot U3O8 need to be at the US$60+ price level to make those commercially viable."
Russia embargo: "Any embargo on Russian uranium would have an impact on spot prices. The question is when it might be introduced."
Volume to pick up: "We anticipate a higher volume in 2023 as financial entities resume active procurement [of uranium]."
Japan's turnaround: Japan is currently forecast to restart 17 remaining reactors by the end of 2023
The ASX uranium scene is dominated by two names: Paladin Energy and Boss Energy.
There's plenty of emerging names in the $100-300m market cap space. However, there's a key thing that investors should look out for: Poor definitive feasibility studies (DFS).
Lotus Resources (ASX: LOT), for example, posted its Kayelekera Uranium Project back in August 2022. The project had a net present value between US$160-280m (A$236-414m) but assumes a uranium spot price of US$75/kg.
Current uranium spot prices are sitting around US$50/kg and the company has a market cap of around $250m.
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