Evening Wrap: ASX 200 higher, uranium stocks rally + How low can coal go?

The S&P/ASX 200 closed 34 points higher, up 0.48%. 

The local sharemarket finished a volatile week on a strong note but still down 0.1%, uranium stocks stage a V-shape bounce after the Namibian nationalisation rumours on Wednesday, the RBA is expected to pause next week despite the hotter-than-expected inflation print earlier this week and how low can coal prices go?

Let's dive in.

ASX 200 Session Chart

ASX 200 higher but closed off session highs (Source: Market Index)

Markets

The ASX 200 found some follow-through buying after a strong session on Wall Street on Thursday night. The session was led by Materials and Energy stocks, which found a bid after the US debt ceiling bill passed the Senate (and off to Biden). Heavyweights like Rio Tinto and BHP rallied almost 3.0%. Still, the index remains in no mans land. It ideally returns to the 7,200 level next week where pullbacks are supported and volatility continues to ease. That said, the market remains difficult.

Next Tuesday will be the closely watched RBA interest rate decision. Consensus expects the RBA to hold rates at 3.85% in June but after the hotter-than-expected inflation print earlier this week, it feels like anything is possible.

Economy

New loan commitments for Australian housing fell 2.9% month-on-month in April after a 5.3% rise in the previous month. 

• Figures are down 25.8% year-on-year to $23.3bn

Latest news

Market Insights

Coal: How low can it go

Newcastle coal futures have tumbled from more than US$400 a tonne a year ago to now US$130 a tonne.

As for coal miners, they're still in a financially able spot but they're going to be cycling some rather elevated numbers from FY22. It's also a shame for names like Whitehaven Coal (ASX: WHC) that have been buying back shares on-market.

UBS says seasonal demand tends to kick in around June and demand fundamentals overall look robust in 2023.

"We see cost support in the Pacific at ~$110/t (gNEWC spot now ~$135/t) with Russian supply breakeven in the Baltic at ~$80-90/t (at current FX rate) & the freight differential ~$30/t. We expect the high-CV coal market to tighten & prices to recover in 4Q23," the analysts said in a note on Thursday.

Uranium: Is it takeoff time?

Uranium has been a hyped up sector that's failed to find upside. But now it's on the move again thanks to:

• US debt ceiling progress , which includes US$40bn in loan funding plus US$3.6bn in credit subsidies for clean energy projects (including nuclear energy)

• Uranium futures reaching US$54.7/lb, the highest close since May 2022

• Oliver Stone discusses his new film 'Nuclear Now' on the Joe Rogan Experience

Uranium futures (Source: TradingView)

Despite the resurgence of uranium equities, the reality is that most stocks are flattish year-to-date and down 5-20% in the past twelve months.

I had a quick flick through most ASX-listed uranium names and there's only one that's really moving out. And that's Boss Energy (ASX: BOE).

Boss operates the Honeymoon Uranium Project in South Australia. It's fully licenced and targeting first production in the December quarter of 2023. The project has an 11-year mine life with a production profile of 2.45 million pounds of uranium per annum at an all-in sustaining cost of US$25.62/lb.

Boss Energy weekly chart (Source: TradingView)

Interesting news and movers

Trading higher

• +27.5% Webcentral (WCG) – Continuation rally, up 47% in previous three

• +14.7% Appen (APX) – Upgraded by JPMorgan

• +12.9% Magnis Energy (MNS) – iM3NY cell certification update

• +9.7% 29Metals (29M)

• +2.1% Develop Global (DVP) – Resource update

Trading lower

• -14.6% Adairs (ADH) – Trading update

• -10.0% Immutep (IMM) – Institutional placement  

• -4.9% FSA Group (FSA) – Guidance

Broker notes

Macquarie notes of interest: 

Argosy Minerals (AGY) – Outperform with $0.80 target price 

• “AGY is progressing with its Rincon lithium brine project, with works nearing completion. Securing the outstanding Argentinian Government approvals to progress with the 10ktpa full-scale development of Rincon presents a material catalyst for AGY.”

Aurizon (AZJ) – Outperform with $4.05 target price 

• “Aurizon in June has some of the UT5 inputs repriced. Lower inflation assumptions will add ~2% pa to earnings expectations.”

• “Weather outlook is improving. Miners continue to highlight this should translate into improving volumes, thus upside for AZJ.”

Breville Group (BRG) – Neutral with $21.05 target price

• “The recent Williams Sonoma and Best Buy result release complete the 1Q-CY23 ‘Macquarie Kitchen Benchmark’”

• “Revenue of the benchmark was down 12% in 1Q-CY23. BRG revenue has ‘outperformed’ the benchmark by ~14% pa between CY18-22.”

Paladin Energy (PDN) – Outperform with $1.00 target price

• “We believe the risk to PDN regarding Namibian free carry changes is minimal. We maintain our positive view on PDN and the uranium market.”

• “PDN is on track to execute its restart plan of a 17-year LOM producing >76.0mlb at C1 costs of ~US$27.00/lb (however there is upside risk to costs)”

• “Langer Heinrich is fully licensed, in a known uranium jurisdiction and has a near-term path to market buoyed by a positive uranium outlook”

Scans