The catalyst Paladin Energy and Boss Energy investors must keep their eyes on

The world's largest uranium producer, Kazatomprom, downgraded its 2024 production guidance last Friday by approximately 10%, which sent uranium prices to fresh 17-year highs of US$107/lb.

The news sent uranium stocks soaring, with local names like Paladin Energy (ASX: PDN) and Boss Energy (ASX: BOE) up 6.6% and 7.95% respectively.

Kazatomprom said it faced challenges with securing enough sulfuric acid to achieve its targeted production levels. This issue was already flagged in the previous quarter and has now been reaffirmed. The production cut represents approximately 9 million pounds (on a 100% owned basis) in an already supply-constrained market of about 180 million pa.

The next catalyst

Kazatomprom produces more than 40% of the world's uranium followed by Cameco, which accounts for about 17% of global production.

Cameco will release its Q4 result on Thursday, 8 am Eastern or Friday, 12 am AEDT. Its production figures and guidance will be significant for the industry amid ongoing supply concerns and bullish demand.

What will happen to uranium prices and stocks if Cameco follows in Kazatomprom's footsteps, with a production miss or guidance downgrade?

In the previous quarter, Cameco said it experienced a substantial increase in long-term contracts within the industry, with up to 145 million pounds contracted year-to-date, a level not seen in more than a decade.

Production in Q3 was 3 million pounds, down 32% quarter-on-quarter but up 50% year-on-year. In September, Cameco lowered its full-year 2023 guidance to 30.3 million pounds, down 2.7 million from its initial guidance.

Late last year, Kazatomprom announced supply deals with China's SNURDC (State Nuclear Uranium Resource Development Company) and CNNC (China National Nuclear Corp) as well as Russia's Rosatom. Most of its production is sold to long-term contracts, making new production (not that there is much) less likely to end up on the spot market.

Strength to strength

Paladin Energy has rallied 5.1% so far this week, up 42% in the past month and 88% in the past year to levels not seen since May 2012.

The current strength behind uranium reminds me of the golden lithium days, when spodumene prices rallied from around US$1,250 a tonne in July 2021 to a peak of around US$8,000 a tonne in late 2022.

During this period, the stocks might appear overbought or overvalued – But as long as spot prices kept climbing – Who cares?

(When prices do eventually fall ... That's when you need to be careful)