What are the uranium stocks to watch in 2019? Analysts at Raymond James recently listed three they have on their radar right now.
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The U3O8 spot price has been steadily rising since a brief decline in April last year. Uranium ended 2018 above the US$28-per-pound mark and currently sits at US$28.80.
There is a general consensus among experts that prices will continue to trend upward into 2019, driven by production cuts and increased demand from countries bringing reactors online.
Indeed, analysts at Raymond James state in their latest report that they expect uranium production to decrease, driving prices up. With four new nuclear reactors recently coming online, and another 40+ in various stages of development, demand will surge, especially in nations with no domestic production.
“We have raised our uranium price forecast for 2019 and 2020 as production cuts have started to have an effect on pricing,” analysts say in their latest report.
They now expect uranium prices to average US$33.63 per pound this year, up from their previous forecast of U$33 per pound. In 2020, analysts see prices jumping to US$42 per pound.
In their previous uranium outlook report, analysts admit that attitudes remain restrained when it comes to uranium, despite its status as a viable option for clean energy production.
“We acknowledge that there is still a large inventory overhang built up after the Fukushima accident and sentiment remains negative in some countries given comments from a number of governments (e.g., Germany) about reducing their nuclear fleets and the growth of renewables and natural gas,” they explain.
But the analysts add, “[o]n the other hand, uncovered demand post 2022 continues to grow with over 40 percent of reactor demand uncovered.”
Looking over to prices, the firm believes that uranium could rise from depressed levels, “especially over the next few years as uncovered demand becomes more of a concern, and trend upwards to our incentive price of US$50/lb.”
Read on to learn which three uranium companies the firm prefers for exposure to the sector.
1. Cameco (TSX:CCO,NYSE:CCJ)
Current price: C$15.89; year-to-date: 5.82 percent
Last year, Cameco made international news headlines when it announced it is indefinitely closing its McArthur River and Key Lake uranium projects in Saskatchewan.
In the company’s third quarter report, President and CEO Tim Gitzel said the uranium market is showing a marked improvement compared to a year ago, but there is still a long way to go.
“There are a lot of moving parts in the market right now, largely driven by market access and trade policy issues, and there continues to be a lack of acceptable long-term contracting opportunities,” he added.
2. NexGen Energy (TSX:NXE,NYSEAMERICAN:NXE)
Current price: C$2.31; year-to-date: 2.94 percent
NexGen Energy is heavily invested in developing projects in Saskatchewan’s Athabasca Basin, an area that accounted for the vast majority of the 23 percent of global supply Canada produced in 2016. NexGen has three ongoing projects in the Basin: Arrow, Rook 1 and the ISO Energy deposit, named after NexGen’s 64-percent-owned subsidiary.
In November, the company released prefeasibility study results for its Arrow deposit, with a 64 percent increase in average yearly after-tax net cash flow.
“Incorporating only the indicated mineral resource, the life of mine drops from 15 to 9 years, yet the increase in average annual grade – whilst maintaining a consistent capex and lower opex – results in an after tax net present value of $3.7 billion,” CEO Leigh Curyer said in a press release.
3. Uranium Participation (TSX:U)
Current price: C$4.70; year-to-date: 9.95 percent
Unlike traditional miners that explore and develop mining projects, Uranium Participation is a fund that invests 85 percent of its proceeds in uranium equities; the company also lends uranium to third parties.
The analysts at Raymond James note that Uranium Participation is a low-risk investment because it doesn’t actually mine for uranium, but has high exposure to the space. They state, “given over 90 percent of UPC’s assets are invested into uranium, changes in the price of U3O8 and UF6 could have a material impact on the shares.”
The data for this article was retrieved on January 30, 2019.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.