Denison Mines (DNN) is the Riot Blockchain (RIOT) of uranium. Just as RIOT and other mining companies’ values are directly correlated with the token they are mining, uranium mining companies’ value is directly correlated with the spot price of uranium which has been on a tear reaching new highs and is projected to double in price in the next few months.
Macro Catalysts – Uranium Sector
- Uranium sector sentiment turning increasingly positive. The global narrative has clearly shifted as it becomes abundantly clear that nuclear power has a critically important and growing role to play in the energy mix of the future especially as the clean energy push accelerates.
- The recent UN Climate Summit (COP26) reinforces global pressure to invest more aggressively into green energy.
- The United States, Russia, China, and France now describe the once-neglected technology as a key part of their decarbonization plans and expected to invest heavily, billions, into nuclear energy.
- Previous uranium cycle peak of $150 in 2007; currently uranium has rallied to $45 from a post-Fukushima low of $20 with more fundamental catalysts
- Sprott Physical Uranium Trust (SPUT) launched and has ~$1.95 B of capital and buying power specifically for uranium, and more capital being raised
Primary Catalyst: Supply Squeeze
Supply and demand imbalance causing spot uranium price spike, which will heavily increase miner revenue. Since miners employ operational leverage to mine Uranium, miners are leveraged bets on the uranium sector
[Demand]
- Currently, 442 nuclear reactors operate in 30 countries, consuming 200 million pounds of uranium per year. Over 50 reactors under construction and an additional 321 reactors proposed:
- China to build more than 150 reactors by 2035
- Russia 51 reactors
- India 49 reactors
- Saudi Arabia 16 reactors
- US Infrastructure bill to spend US $6B for new nuclear power
- Japan restart of at least 30 reactors needed
- Sprott Physical Uranium Trust has accumulated about 6m pounds of physical uranium since it began trading on July 19
- Uranium demand is projected to rise from 162m pounds in 2023 to 206m pounds in 2030, then to 292m pounds in 2040
[Supply]
- The supply deficit is currently 20 million pounds and could reach as much as 50 million pounds as mine production has been suspended due to COVID-19
– Utilities have been underbuying uranium since 2014, this deficit has been filled by the drawdown of existing inventories. US inventories have drawn down 30% over the last 12 months, left with around 2.5 years of inventory. Given the long lead time required for uranium delivery, utilities historically do not let their inventories fall below the 2-3 year coverage level. Utilities may need to start entering the market to secure more uranium.
– At the same time, in response to lower prices, uranium producers began cutting capacity over the past several years. Most recently, these cuts have been accelerated by the recent coronavirus pandemic
- 11/2: China to spend $440B to build 150 new reactors in 15 years
- 10/29: UK adopts Nuclear Energy Finance Plan
- 10/18: Kazatomprom Announces Physical Uranium Fund
- 10/16: UK Net Zero Emission Plan to Focus on Nuclear Power
- 10/15: Électricité de France (the main utility/energy company of France) Offers to Build Six Nuclear Reactors in Poland
- 10/12: Led by France, 10 EU Countries Call on Brussels to Label Nuclear Energy as Green Source
- 10/11: Japan’s new PM Defends Pro-Nuclear Stance in Parliamentary Debut
Fundamental Analysis:
- $3.75 PT by Cantor Fitzgerald based on a 1.5x multiple on the company’s Athabasca Basin uranium projects and 1.0x NPV on its net financial position (cash, investments, and Uranium in inventory)
- Recently sold half of the equity stake in GoviEx for C$15.6MM in cash upfront and up to C$41.6MM in total consideration if the warrants are exercised in full. GXU shares up 104% YTD.
- Cash and Uranium inventory: C$220MM
- Market Cap: 1.4Bn
- Successful 2023 in-situ recovery field test program at the Phoenix deposit at its 95% owned Wheeler River Uranium Project. Successful field test provides further proof of concept on the amenability of the high-grade Phoenix deposit to the In-Situ Recovery extraction method. Delivered on multiple de-risking milestones. De-risking work at Wheeler River regarding the In-Situ Recovery mining approach to the ultra-high-grade Phoenix deposit is underappreciated by the market. Denison has made significant positive technical progress in the field in 2023 along with very positive drill results which are expected to lead to more uranium actually recovered from Phoenix. In-Situ Recovery technique will result in an extremely low production cost profile.
Technical Analysis
Bullish market structure: higher lows, higher highs for price and RSI. Recent Inverse Head and Shoulder break could indicate an imminent run
Risks:
- Commodity miners are at high risk due to their operational leverage and reliance on volatile commodity prices for revenue. However, with the multitude of strong macroeconomic tailwinds and supply/demand imbalance pushing up the price of uranium for the foreseeable future, promising In-Situ Recovery results, strong cash, investment, and Uranium position on its balance sheets, Denison Mines is well positioned to mitigate risks in the near term.
This article was written by u/MOGO-Hud.
