Ina previous article, I discussed the dynamics of the uranium market, breaking down the key factors driving supply and demand. On the back of that piece, I thought it would be worthwhile investigating companies listed on the ASX with a major focus on uranium and therefore, which have the most to benefit from the recent surge in uranium prices.
As I delved deeper into the ASX-listed uranium sector, it became clear that one article on Aussie uranium-stocks wouldn't be enough! So, I've decided to break up my coverage into a mini-series which I hope will eventually serve as a definitive guide to ASX uranium stocks.
I’m kicking off today at the very top with Australia’s largest uranium producer, BHP Group (ASX: BHP). In future editions, I’ll work my way down to the minnows which are still very much at the exploration stage.
Boss Energy (ASX: BOE), Paladin Energy (ASX: PDN), and Deep Yellow (ASX: DYL) tend to garner most of the attention in the ASX-listed uranium space. Certainly, we've seen decent spurts in the stock prices of each of these companies recently as the uranium spot price has pushed through US$75/lb.
But, to borrow a phrase from Master Yoda, "There is another". In terms of ASX-listed uranium production, there's BHP Group (ASX: BHP), then there's daylight (lots of it), and then there's everyone else. In FY23, the Big Australian produced 3,406 tonnes of uranium (7.5 Mlbs) from its Olympic Dam mine in South Australia, up an impressive 43% year on year.
This means BHP now accounts for just under 7% of world uranium production, making it a globally significant producer. (Remember from last week's article, Kazakhstan's Kazatomprom is the world's largest producer with around two-fifths of global production, and Canada's Cameco is second largest with around 14% of global production).
To put BHP's production into further perspective, the ASX-listed uranium pure-play closest to producing any uranium is Boss Energy, and it hopes to be producing around one-third of BHP's current production within the next three-years.
But, if you're a uranium bull ("U-Bull"), you can't really draw a line between BHP's substantial position in the global uranium supply chain and your desire to snag a 100-bagger in the uranium bull market.
This is because, in terms of profitability, BHP is primarily an iron ore and copper company. Based on BHP's FY23 results, iron ore accounted for 46% of its underlying EBITDA and copper contributed 30%.
However, there's a big asterisk on the 30% stat for copper. My best research suggests it’s here that BHP folds in its uranium profitability contribution. I failed to determine just how much of BHP's profit comes directly from uranium (insert PR-based conspiracy theory here), but I note two data points from the World Nuclear Association and the Australian Government, which suggest 20-25% of Olympic Dam's revenue comes from uranium.
Back-of-the-envelope maths suggests uranium could add roughly 6-8% to BHP's bottom line. Hardly big enough to move the dial on BHP's share price, especially compared to the daily ebb-and-flow iron ore and copper prices tend to have on its narrative.
But, BHP does have considerable potential to capitalise on uranium if it wants to. According to the Australian Government report mentioned above, Olympic Dam contains "26% of the world's low-cost uranium resources and is the world's largest uranium deposit".
As far as I can tell, BHP isn't particularly motivated to make a major pivot towards uranium production to take advantage of the recent spike in the spot price. According to comments by company officials, BHP's uranium production is merely a by-product of Olympic Dam's copper production.
This doesn't mean management is ignorant of the opportunities higher uranium prices present. On this point, I'd keep an eye out for any news related to a potential upgrade of the Olympic Dam smelter, which could grow copper output by more than 50%.
BHP would love to get this over the line, and the economics of the upgrade are certainly looking better given uranium's recent price run. The approval for the upgrade is still awaiting a final investment decision, but if it gets the green light, expect BHP's uranium production to get a major boost as well.
I say this not to highlight BHP as an investing opportunity for U-Bulls, quite the opposite actually. One must consider the massive impact such a development could have on global uranium supply, and therefore on the uranium price.
Some may argue BHP is somewhat redundant in the “definitive guide” of ASX uranium companies. I agree it will be difficult to ascertain just how much of an impact any potential increase in the uranium price will have on BHP’s stock price - but it is just too big a global player to ignore.
If you’re a U-bull, just knowing about the potential impact the Olympic Dam smelter upgrade could have on the uranium price is worth the pixels I’ve devoted to BHP in this guide. Next time, I’ll move on to what I call the uranium “pure plays”. These are the stocks listed on the ASX for which there is no iron ore or copper backup plan - uranium is all they do!
Check out my articles on the other Top 5 ASX Uranium Companies: Part 2: NexGen Energy, and Part 3: Boss Energy, Part4: Paladin Energy, and Part 5: Deep Yellow, and my article on Demand and supply dynamics of the uranium market.
To get a better understanding of the jargon used in the analysis of mining companies, I suggest you read these articles on how to interpret mining company resources, reserves, and drilling results and the stages of mining company development.
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