Ventum Capital In a research report titled Take Advantage of the Quiet Summer, Ventum Capital Markets analyst Alex Terentiew said the fundamentals for the uranium market remain “clear” for longer-term investors, expecting prices to trend higher and “quality” companies to follow suit.
“The summer months in the uranium market have been quiet, with spot prices softening, equities similarly drifting lower, and term market volumes also less than half of those seen last year,” he said. “While 2023′s heightened activity may have pulled forward some of 2024′s demand, we see plenty of pent-up and growing demand poised to deliver a surge in activity. Despite the spot and equity market weakness, there has been continual news flow from government policymakers and utilities around the globe, as well as a growing list of electricity-hungry data centre and AI companies seeking more power to meet surging demand for computing power. Considering the long timelines required to design, build, and create the needed regulatory framework for new nuclear supply, we admit that timing the uranium cycle can be a challenge.”
Mr. Terentiew pointed to several catalysts to monitor in the market, including sulphuric acid supply shortages in Kazakhstan, political issues in Niger and uncertainty stemming from the approaching U.S. election. While equities have slid given the uncertainty in the market, exceeding the decline in spot prices, he emphasized fundamentals “remain strong.”
“Over the past three months, uranium equities have retraced the gains made in 2023, with most stocks down 25 per cent plus, exceeding the 10-per-cent drop in spot prices,” he said. “Yet term prices have held all their gains with the long-term price in fact up US$2/lb to US$82/lb. As such, we believe equity price weakness can be ascribed to investors placing too much emphasis on spot prices, and/or profit-taking, potentially locking in gains made over the past 12 months. Considering the unwarranted weakness, we, therefore, recommend investors step in at current prices to take advantage of the upside we expect to materialize as companies steadily advance their projects and ramp up production.”
His top long-term investment idea remains enCore Energy Corp. (EU-X) with a “buy” rating and $7 target. The average on the Street is $7.38.
“As one of the newest uranium producers in the U.S. with a production profile that we expect to garner more investor attention over the coming months, a strong balance sheet, and resource updates that we expect will illustrate more long-term value, we continue to view enCore as a lower-risk, steadily growing producer with valuation upside,” said Mr. Terentiew.
In the near-term, he thinks NexGen Energy Ltd. (NXE-T) could “outperform,” raising his target for its shares by $2 to $14 with a “buy” rating. The average is $13.12.
“In light of the significant NAV accretion we expect to materialize over the coming years, in conjunction with a likely, in our view, receipt of the federal environmental approval in the coming months, we have raised our valuation multiple on Rook 1 to 1.4 times, up from 1.0 times previously, which moved our target price up ... Our 1.4 times multiple is in line with the multiple we use to value currently operating mines, such as Ur-Energy’s (URE-TSX, BUY, PTC$2.75) Lost Creek ISR operation,” he said. “Partially offsetting the multiple bump is a 10-per-cent reduction in our NAVPS estimate as we also incorporated the new operating and capital cost guidance announced by NexGen on August 1.”