Argonaut Algorithm: Why uranium stocks could be back in investors' good books

News.com.au

13-05-2025

Argonaut Funds Management's David Franklyn joins Stockhead to share investing secrets from the high-conviction resource sector investing fund, including his junior stock pick of the month.
Uranium is back on the up, with a move to US$70/lb for spot prices in recent weeks breaking several months of malaise.
While contract prices have remained stubborn, circling around the US$80/lb range for some time, spot prices have been under pressure since hitting decade highs of US$107/lb in January last year.
That's come despite positivity around the long-term future for nuclear energy, with around 65 new reactors currently under construction worldwide and the World Nuclear Association tipping a doubling of demand out to 2040.
The uranium market is already in a 50-60Mlb deficit, with ~156Mlb produced last year.
In part that is because utilities have been well-supplied, and until recently were able to rely on bargain basement pounds from the spot market.
2024 was the strongest contracting year in over a decade. But this year has seen utilities nervous to deal, with potential tariffs hurting market confidence.
Argonaut Funds Management's David Franklyn said the utilities had been holding on for a better deal, but that a supply rush was now looking too slow to come online.
"They've had enough stocks to see it through, but there's been an expectation that then you've got a whole lot of new projects coming on stream, whether it's NexGen or Denison or Paladin or Boss," he said.
"The expectation was that there was this emerging wave of production coming through. I think what we're seeing is that most of those projects have probably been pushed out a little bit.
"The ones that have come on stream, they haven't delivered the volumes as quickly as the market was expecting."
Franklyn said what Argonaut was hearing from the industry was that utilities were starting to put out expressions of interest for new contract volumes.
More drivers
Franklyn sees other positive drivers for uranium, underpinning the recent shift back to positive sentiment.
Uranium has remained exempt from US tariffs, while the White House has also been rumoured to be preparing Executive Orders to induce quicker reactor builds and approvals, using the Department of Defense as a mechanism to circumvent historic bureaucratic processes.
"That's very positive for future demand," Franklyn said.
The European Commission is also looking at developing a roadmap that would restrict deals with Russia on enriched uranium, while tech giants are turning to nuclear to power their AI data centres, which are energy hungry and in need of low emissions, baseload power.
"There's just this confluence of events with lots of positive news saying the demand for uranium is going to continue to increase and the market's, more and more conducive to that," Franklyn said.
The Sprott Physical Uranium Trust also boosted market confidence on Monday night after committing to a US$25.55m non-brokered private placement. That meant it avoided having to sell uranium into the market to preserve its balance sheet, removing a key overhang for uranium equities.
Franklyn thinks over the long-term prices will settle into a range of US$75-80/lb, but sees real risks of a run up to over US$100/lb as the market rebalances in the short term.
Once NexGen Energy (ASX:NXG) has developed its Rook I project in Canada, there will be three major producers on the listed market – Kazakhstan's London-listed Kazatomprom, Canada's Cameco and the Canadian-Australian NexGen.
Behind them are a number of Australian and Canadian companies who are smaller in scale and either still in the study phase or ramping up operational restarts.
Many, notably Honeymoon mine owner Boss Energy (ASX:BOE) and Langer Heinrich operator Paladin Energy (ASX:PDN), remain heavily shorted, with close to a quarter of Boss' shares held short.
Franklyn said there may be doubts from the market that ASX companies can keep their costs down and generate a strong margin if prices remain around US$70/lb.
It should be noted both produced solid March quarters, with Boss generating 295,819lb of drummed uranium at a C1 cost of US$21/lb, while Paladin produced 745,484lb at US$40.6/lb at its Langer Heinrich mine in Namibia.
Boss also has the majority 30% stake in enCore Energy's Alta Mesa project in Texas, which produced 130,015lb at a cost of US$36.11/lb in the first quarter.
Argonaut's stock pick of the month
Staying in the uranium space, and Franklyn sees two standouts. Both are listed in Canada, though the first one comes with a shared Australian listing as well.
That's NexGen Energy (ASX:NXG), which owns the mammoth Rook I project in Saskatchewan's famously well-endowed and high-grade Athabasca Basin.
"NexGen looks pretty compelling," Franklyn said.
"It's got scale, it is going to be low cost. And you've got a view as to how the market might value it by looking at Cameco.
" I think that is a standout in the sector."
Rook I includes the Arrow project, which contains 3.75Mt of measured and indicated resources at a grade of 3.1% U3O8, for 257Mlb of uranium oxide.
Its probable mineral reserves have been estimated at 240Mlb within 4.6Mt of ore at 2.37% U3O8, with Arrow to cost an estimated US$1.3bn to develop but run at costs of just US$7.58/lb U3O8, producing a monstrous 29Mlbpa over its first five years.
NXG has had to navigate a complex permitting route for Rook I, but has line of sight now with hearing before the Canadian Nuclear Safety Commission now set for November this year and February 2026.
Franklyn also likes the look of TSX-listed ISO Energy.
NXG holds close to 32% of the Canadian firm's shares, which are currently trading at C$9.28 for a market cap of C$446m.
ISO holds the Hurricane Zone project in the Eastern Athabasca Basin, which contains an indicated resource of 63,800t at an obscene 34.5% U3O8 for 48.6Mlb.
An inferred resource outside that contains 54,300t at 2.2% for 2.7Mlb of yellowcake, with the project around 40km from Orano's Maclean Lake mill.
"To put that into context. Paladin is 0.07%, Boss is 0.04%, Deep Yellow is 0.03% and Bannerman is 0.02%," Franklyn said.
"Cameco's Cigar Lake is about 15%, McArthur River is about 5% and NexGen, their overall project is about 3% but they've got high areas at about 15%.
"So you can just see it's pretty unique, relatively good scale ... very high grade in an area with good infrastructure."
Argonaut Funds Management is a high conviction resource sector investor managing the Argonaut Natural Resources Fund and the Argonaut Global Gold Fund. David Franklyn is the Fund Manager for the Argonaut Natural Resources Fund.
The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.